Euro Zone Growth Slows to Nine-Month Low Amid Rising Costs

Euro zone economic growth decelerated sharply in March 2026, with the S&P Global Composite PMI dropping to 50.7 from 51.9 in February, the weakest pace of expansion in nine months. The figure suggests a 0.2% GDP growth in the first quarter of 2026, with risks of stagnation if cost pressures continue. While still above 50, indicating marginal growth, this marks a significant slowdown in the region's private sector.

The slowdown was driven by rising input costs, particularly energy, which surged 10% year-on-year in March 2026, their highest rise in over three years. This spike contributed to a decline in new business and export orders, which fell for the first time in eight months. The services sector, which accounts for about 70% of the euro zone economy, almost stagnated, while manufacturing saw only limited growth despite higher input cost inflation.

Country-level data showed Germany, the euro zone’s largest economy, experiencing a seven-month low in activity, with its services sector growth slowing to 0.3% from 0.6% in February. Meanwhile, France and Italy both reported contractions in business activity, with Italy’s PMI falling below 50, signalling contraction.

Core inflation in the euro zone remains elevated at 4.5%, well above the European Central Bank’s target of 2%. Rising energy prices, linked to the ongoing Middle East conflict, continue to weigh on inflation. The ECB faces growing pressure to raise rates, with markets pricing in a potential 50 basis point hike by mid-2026.

Overall, the euro zone faces continued slow growth and inflationary pressures, posing challenges for businesses, consumers, and policymakers alike.