Powerful Winter Storm Knocks Out European Factory Growth

Europe’s manufacturing boom stumbled in March as optimism waned and demand ebbed owing to a powerful winter storm, surveys showed on Tuesday, but expansion was still broad-based across the continent.

Factories in the currency bloc ended 2017 with record strong growth, so any slowdown from that pace is unlikely to stop decision-makers at the European Central Bank moving away from their ultra-easy policy stance, Reuters reported.

In Britain, deep in negotiations to leave the European Union, manufacturing growth cooled to a year low in the first quarter of 2018, but a survey there suggested the economy is on a slow but steady course a year ahead of Brexit.

Most economists polled by Reuters think the Bank of England is likely to raise interest rates to a new post-financial crisis high of 0.75% in May as the central bank officials are keeping an eye on inflation pressures.

IHS Markit’s final manufacturing Purchasing Managers’ Index for the eurozone sank to an eight-month low of 56.6 in March from 58.6, in line with an earlier flash estimate and still comfortably above the 50 mark that separates growth from contraction.

An index measuring output, which feeds into a composite PMI due on Thursday which is seen as good guide to economic health, fell to a 16-month low of 55.9 from 59.6, a little below its flash estimate.

Eurozone economic growth has already peaked, a Reuters poll found last month, but the ECB will probably decide this summer to slash its bond purchases if things develop as expected, policymaker Ewald Nowotny said last week.

“Clearly, the big question remains what the PMI will do next: the level is still good but the trajectory needs to stabilize in April,” said Greg Fuzesi at JP Morgan.

Britain’s PMI inched up to 55.1 in March from a downwardly revised 55.0 in February, beating the 54.7 consensus in a Reuters poll of economists.

“March’s heavy snowfall doesn’t appear to have had a particularly severe impact on supply chains,” noted Ruth Gregory at Capital Economics. “However, on the basis of past form, the output index still points to a slowdown in manufacturing growth to around 0.5% in Q1, well below the 1% plus rates seen at the end of last year.”