Eurozone Manufacturing Rebounds as Services Slow—Key ECB and Trading Signals

Services Sector Slows as Input Costs Moderate

The services sector, while still in expansion, lost momentum in March. The Flash Eurozone Services PMI dipped to 50.4 from 50.6 in February, reflecting subdued new business demand. German services activity underperformed sharply at 50.2 versus a forecast of 52.3, signaling a weakening outlook despite previous strength. France posted a modest gain to 46.6, slightly above expectations but still in contraction. Price pressures in the services sector eased, with slower input cost growth—welcome news for the ECB as it weighs monetary policy decisions.

Inflation Signals and Policy Implications

The slowdown in price growth across both manufacturing and services will likely be seen favorably by ECB doves. Input cost inflation in services moderated, hinting at reduced wage pressures, while selling prices in manufacturing increased for the first time in seven months, driven by moderate input costs and lower energy prices. With inflation trends softening, the central bank may find room to reassess the pace of its rate strategy, though risks such as trade tensions and elevated food prices remain on the radar.

Market Forecast: Bullish Manufacturing Outlook, Cautious on Services

The March PMI data support a cautiously bullish outlook for Eurozone manufacturing as output growth and improving order trends gain traction. However, the services sector presents downside risks, particularly in Germany. Traders should monitor next month’s final PMI releases for confirmation of sustained recovery in manufacturing and potential ECB policy recalibrations.

More Information in our Economic Calendar.