Euro zone business growth worse than expected in March - PMI

LONDON (Reuters) - Businesses across the euro zone performed much worse than expected in March as factory activity contracted at the fastest pace in nearly six years, hurt by a big drop in demand, a survey showed on Friday.

While a downturn in manufacturing was partly offset by stable - yet relatively weak - growth in the euro zone’s dominant services industry, the surveys suggested the bloc’s economy had a poor first quarter.

That supports the European Central Bank’s change of tack earlier this month. It pushed out the timing of its next post-rate increase until 2020 at the earliest and said it would offer banks a new round of cheap loans to help revive the economy.

IHS Markit’s Flash Composite Purchasing Managers’ Index, which is considered a good guide to economic health, dropped to 51.3 this month from a final February reading of 51.9, missing a Reuters poll median expectation for 52.0.

“The March decline in the euro zone’s PMI indicates the bloc’s economic problems are far from over. Today’s PMI indicates that GDP growth is unlikely to have bounced back in Q1,” said Bert Colijn at ING.

IHS Markit said the PMIs pointed to first-quarter GDP growth of 0.2 percent, below the 0.3 percent predicted in a Reuters poll last week. The economy expanded 0.2 percent in the final three months of 2018, its slowest pace in four years. [ECILT/EU]

The flash manufacturing PMI sank to 47.6 from February’s 49.3, its lowest reading since April 2013 and well below the 50 mark that separates growth from contraction.

Unfinished pliers still glow after being hot-formed by a hammer at the factory of Knipex, a 130 year-old family-owned pliers and tools maker company in Wuppertal, western Germany, October 25, 2016. REUTERS/Wolfgang Rattay/File Photo GLOBAL BUSINESS WEEK AHEAD PACKAGE - SEARCH 'BUSINESS WEEK AHEAD 21 NOV' FOR ALL IMAGES?

A Reuters poll had predicted a modest rise to 49.5 and even the most pessimistic economist surveyed had predicted a reading of 48.4.

An index measuring output, which feeds into the composite PMI, plummeted to a near six-year low of 47.7 from 49.4.

German manufacturing contracted further this month, a sister survey showed, compounding fears that unresolved trade disputes are exacerbating a slowdown in Europe’s biggest economy.

“Far from easing, as many had anticipated, the German manufacturing recession is getting worse,” said Andrew Kenningham at Capital Economics.

Meanwhile, French business activity slowed unexpectedly as a recent rebound ran out of steam in the face of deteriorating demand.

Highlighting the struggles faced by factories in the region, the new orders index dropped to 44.5 from 46.3, a level not seen since the end of 2012. Casting more shadows on the outlook, companies ran down old orders and raw materials and built up stocks of completed goods.

Growth in the services industry slowed in line with a Reuters poll. Its PMI dipped to 52.7 from 52.8.

And some of that activity came from completing old work. The backlogs of work index fell to 49.0 from 51.0, only the second time it has been sub-50 in almost three years.

Adding to the melancholy picture, services slowed their hiring.

So with forward-looking indicators turning increasingly downbeat, optimism about the year ahead waned. The composite future output index dropped to 59.9 from 60.6.

Editing by Larry King