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Eurozone Private Sector Growth Slows Led By Worsening Manufacturing Downturn

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Eurozone private sector expanded at the slowest pace in two months in March, amid a deepening downturn in manufacturing, defying expectations for a modest improvement, suggesting that the growth momentum is set to remain sluggish in the 19-nation economy.

The flash Eurozone Composite Purchasing Managers' Index rose to a two-month low of 51.3 from 51.9 in February, flash data from the IHS Markit survey showed on Friday. Economists had forecast a score of 52.

A score above 50 suggest growth in the sector, while a reading lower than 50 indicates contraction.

"The survey indicates that GDP likely rose by a modest 0.2 percent in the opening quarter, with a decline in manufacturing output in the region of 0.5 percent being offset by an expansion of service sector output of approximately 0.3 percent," IHS Markit Chief Business Economist Chris Williamson said.

"Any such further loss of growth momentum in the second quarter...would raise doubts on the economy's ability to grow by more than 1 percent in 2019," the economist added.

The factory sector contracted the most in nearly six years in March with the deterioration in output and new orders intensifying.

The manufacturing PMI dropped to a 71-month low of 47.7 from 49.4 in February. Economists were looking for a score of 49.5.

The services PMI hit a two-month low of 52.7 from 52.8 in February. The reading was in line with economists' expectations.

New order growth stagnated for a second successive month and the reduction in backlogs was the largest since November 2014, suggesting excess capacity developing in the economy.

Consequently, private sector employment growth slowed to the joint-weakest since September 2016.

Exports fell for a sixth month running, and at the steepest rate since comparable data for total exports were first available in September 2014.

Factory orders declined at the sharpest since December 2012, driven by a sharp fall in export orders that shrunk the most since August that year.

Manufacturing output has fallen for two months running and order for six consecutive months. With the order decline out-pacing the fall in output, factory backlogs decreased at the fastest pace since December 2012.

Though service sector firms attracted more new business in March, exports dropped the most since the data series began. Backlogs dropped further leading to weaker jobs growth.

Optimism among private sector businesses weakened with the factory sector confidence sinking to its lowest since December 2012.

"Reduced optimism principally reflected the expected impact of lowered forecasts for economic growth, with widespread concerns specifically focusing on heightened political uncertainty, trade wars and Brexit," IHS Markit said.

"The auto sector also remained a key area of expected weakness."

On the price front, selling price inflation accelerated modestly in March, while cost inflation slowed for a fifth month running, with prices rising at the weakest rate since October 2016.

In Germany, private sector growth was the slowest in nearly six years with orders falling for a third month in a row. The service sector growth remained robust, while manufacturing output fell at the sharpest rate since August 2012.

The French private sector shrunk in March led by an increased decline in new orders that was mainly driven by a sharp fall in export demand. Services activity also declined.

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