Euro zone manufacturing growth bounced to its strongest in nearly four years in March as supply chain disruptions inflated growth figures although underlying demand remained tepid and soaring input costs due to the Iran war threatened to undermine the sector's fragile recovery, a survey showed.
The conflict in the Middle East has disrupted global logistics networks, causing delivery delays that artificially boosted headline growth measures while also pushing input price inflation to its highest since October 2022.
The S&P Global euro zone Manufacturing Purchasing Managers' Index rose to 51.6 in March from 50.8 in February, higher than a preliminary estimate of 51.4.
A reading above 50.0 indicates growth in activity.
"The war in the Middle East has already left its mark on euro area manufacturing," said Joe Hayes, principal economist at S&P Global Market Intelligence.
"Suppliers' delivery times have risen sharply as logistics markets re-adjust to maritime disruption, while surging oil and energy prices have pushed factory input cost inflation up to its highest level since late-2022."
The new orders sub-index - a key gauge of demand - matched February's 46-month high but growth remained modest.
Production rose for a third consecutive month, with the output sub-index edging up to 52.0 from 51.9 in February, marking a seven-month high.
New export orders stabilised after contracting for eight straight months, providing some relief to manufacturers.
Backlogs of work increased for the first time since mid-2022, signalling capacity pressures, yet companies cut jobs at a faster rate in March.
Input cost inflation surged to a 41-month high, driven by higher oil and energy prices. Manufacturers responded by raising selling prices at the fastest pace in just over three years.
"We saw some of the war-driven inflation impulse being passed straight through to final prices in March, reducing the euro zone's competitiveness," Hayes added.
Business confidence slipped to a five-month low and remained below its long-term average as the conflict weighed on sentiment.
Germany and Italy recorded their strongest readings in 46 and 37 months respectively, while Spain was the only country in contraction territory. Greece posted the highest reading, followed by Ireland, while France's manufacturing sector stagnated.
(Reporting by Jonathan Cable; Editing by Hugh Lawson)
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