Euro Manufacturing Stays Near 3-Year High as Recovery Persists

Growth in euro-area manufacturing stayed close to the highest level in almost three years in March, adding to signs the region’s recovery is gathering pace.

An index based on a survey of purchasing managers slipped to 53.0 from 53.2 February, matching an initial estimate released last week, London-based Markit Economics Ltd. said in a statement today. The index has been above 50, indicating expansion, since July. Gauges for the region’s four largest economies all indicated growth.

While the report is further evidence that the recovery is gaining traction, the euro has appreciated more than 7 percent against the dollar in the past 12 months and inflation slowed to the lowest level in four years in March, highlighting the risks to the outlook. European Central Bank policy makers meet on April 3, and economists predict they will refrain from adding stimulus.

“The goods-producing sector is on course to provide a meaningful boost to the overall economy in the first three months of the year,” said Chris Williamson, chief economist at Markit in London. Still, “a self-sustaining recovery is not yet in place and reliant at least in part on price discounting to win sales. Such deflationary signals will continue to spook policy makers.”

Output Prices

Euro-area output prices contracted in March for the first time since August, with the index dropping to 49.3 from 50.5 in February, Markit said.

Manufacturing growth in Germany, Europe’s largest economy, slowed to 53.7 in March from 54.8. In France, manufacturing returned to growth for the first time in two years. The factory gauge increased to 52.1 from 49.7 in February.

In Italy, the index rose to 52.4 from 52.3, while it advanced to 52.8 from 52.5 in Spain. Greek manufacturing contracted in March after expanding for the previous two months.

The surveys signal economic growth of about 0.5 percent in the first quarter, Markit’s Williamson said. That compares with an expansion of 0.3 percent in the final three months of 2013.

“The picture is one of continued recovery,” Chris Scicluna, head of economic research at Daiwa Capital Markets in London, said before the data. “There are a range of risks. An important element to the recovery is external demand. The Governing Council is keeping an eye on the exchange rate.”

ECB Meeting

ECB policy makers, led by President Mario Draghi, will keep the benchmark interest rate at a record low of 0.25 percent on Thursday, according to 54 of the 57 economists in a Bloomberg News survey. Credit Agricole SA and Danske Bank A/S predict a cut to 0.15 percent, and Goldman Sachs Group Inc. forecasts a reduction to 0.1 percent.

“It is premature to rule out any further action from the ECB,” Richard Barwell, senior European economist at Royal Bank of Scotland Group Plc in London, said before the PMI release. “On balance, we do not expect looser policy on Thursday, despite the surprisingly weak inflation print, but plenty of loose talk.”

The inflation rate has been below 1 percent for six months, while the ECB seeks to keep it at just under 2 percent. Consumer prices increased 0.5 percent in March from a year earlier, after a 0.7 percent gain in February, the European Union’s statistics office in Luxembourg said yesterday. That missed the 0.6 percent median forecast in a Bloomberg News survey of 41 economists.

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