Eurozone factories' slowing pace seen hinting at growth peak

A Purchasing Managers’ Index for manufacturing fell to 58.6 in February - slightly better than a previous flash estimate of 58.5, according to IHS Markit. Still, the gauge’s decline since the end of 2017 was the steepest in two years, reinforced by a slowdown in export orders across the region.

The reading is one of a cluster in the past week suggesting exuberance over economic activity and trade may be cooling off even as euro-area and global growth remains strong. Other reports have showed a drop in economic confidence in the region to a four-month low, Chinese manufacturing experiencing the biggest slump in five years, and a decline in Japanese factory activity.

In the euro area, “growth could cool further in coming months,” said Chris Williamson, chief business economist at IHS Markit. Slowing order inflows are leading to a moderation in job creation, “adding to suspicions that the manufacturing growth peak is behind us.”

For now, the picture in the eurozone is still one of economic resilience. The region’s largest economies are seeing solid rates of expansion and even Greece is catching up, with data hinting at the fasted growth in 18 years, according to IHS Markit.

At the same time, the European Central Bank’s stimulus measures remain highly accommodative as inflation shows little signs of an upward trend. That could change as businesses run into capacity constraints and respond to an increasingly tight labour market with higher wages.

“Skill shortages are being increasingly reported and supply chains are being stretched to one of the greatest extents on record,” Williamson said, adding that labour scarcity may also contribute to slowing growth. In terms of prices, “widespread cases of demand exceeding supply highlight the ongoing presence of solid underlying core inflationary pressures.”