Euro zone factory activity soared in March but supply issues loom By Reuters

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© Reuters. FILE PHOTO: Codogno, one year on

LONDON (Reuters) – Euro zone monthly factory activity growth galloped at its fastest pace in the near 24-year history of a leading business survey last month, but supply chain disruptions and renewed lockdowns in the region may rein it in soon.

With Europe suffering a third wave of coronavirus infections, governments have re-imposed tough controls on their citizens, hurting the bloc’s dominant service industry and leaving it to manufacturers to drive the economic recovery.

IHS Markit’s final Manufacturing Purchasing Managers’ Index (PMI) jumped to 62.5 in March from February’s 57.9, ahead of the initial 62.4 “flash” estimate and the highest reading since the survey began in June 1997.

An index measuring output, which feeds into a composite PMI due on Monday that is seen as a good gauge of economic health, climbed to 63.3 from 57.6, well above the 50 mark separating growth from contraction and easily a survey high.

“Euro zone manufacturing is booming,” said Chris Williamson, chief business economist at IHS Markit.

“Although centred on Germany, which saw a particularly strong record expansion during the month, the improving trend is broad based across the region as factories benefit from rising domestic demand and resurgent export growth.”

But supply chain issues, likely exacerbated by the recent blockage of the Suez Canal which has caused disruption to global shipping and at ports that could take months to resolve, has driven a surge in prices and the biggest increase in suppliers’ delivery times since the survey began.

Both the readings for input and output prices were near record highs. The input price index jumped to 79.7 from 73.9, a level not seen in a decade.

“While the forces driving prices higher appear to be temporary, linked to the initial rebound from COVID-19 lockdowns, any further upward pressure on firms’ costs and selling prices is unwelcome,” Williamson said.

Still, as factories struggled to meet flourishing demand they increased headcount sharply and built up a solid backlog of work.

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