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Euro-Area Manufacturers Rein in Output Amid Capacity Constraints

  • Purchasing Managers’ Index dropped to 56.6 in March from 58.6
  • Gauge still points to solid economic growth, IHS Markit says

 Euro-area manufacturing expanded at the weakest pace in eight months in March as factories delayed production due to increasing capacity constraints.

A Purchasing Managers’ Index dropped to 56.6 from 58.6 -- in line with a previous flash estimate -- IHS Markit said on Tuesday. Activity slowed across countries and industries in the region but remained indicative of solid growth nonetheless, it said.

“We should not be too worried by the fall in the PMI as some moderation in the pace of growth from the surge seen at the turn of the year was inevitable,” said Chris Williamson, chief business economist at the London-based company. “However, the fact that business optimism about the coming year has slipped to a 15-month low suggests there are other factors that are now hitting factory-order books.”

IHS Markit said that while supply-chain bottlenecks and bad weather were stymieing production, in some cases demand is being capped by higher prices and the euro’s appreciation.

Such trends could weigh on the region’s upswing as strong growth has yet to translate into sustainably higher inflation. Policy makers at the European Central Bank are debating when to wind down extraordinary monetary stimulus, and some officials have cautioned that a stronger currency, trade risks and higher-than- expected slack might be reasons to go slow.

Despite softer output growth in manufacturing, IHS Markit said the sector is still likely to make a substantial contribution to economic expansion in the first quarter.

The overall pace of growth “remains robust by historical standards,” Williamson said.

— With assistance by Mark Evans

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