Early PMI data shows developed-world business optimism nears lowest since 2022

Flash Purchasing Managers' Index data compiled by S&P Global Market Intelligence indicates that business output among the largest developed economies rose at a slightly increased rate in March.

That growth, though, was uneven and has remained modest so far this year by standards set in 2024. The sustainability of any upturn is also in question as business sentiment in the G4 economies — the eurozone, Japan, UK and US — has slipped near its lowest level in 29 months.

Expectations are falling in the US, eurozone and Japan amid heightened geopolitical and trade uncertainty. US companies face an additional headwind of rising prices.

– Set email alerts for future PMI articles. – Read more PMI research on S&P Capital IQ Pro. – Full PMI data is available only via subscription. For more information or to express your interest, please contact your S&P Global relationship manager.

G4 output growth ticks higher from low base

The Composite Purchasing Managers Index (PMI) Output Index from the G4 economies, covering goods and services, rose to 52.0 in March from 51.2 in February. While the latest reading signals the strongest expansion of output for three months, the average for the first quarter as a whole is the lowest quarterly reading since the first quarter of 2024.

The US reported the most improvement among the G4, regaining the top spot after falling behind Japan in February. Output growth across goods and services in the US was the best seen so far this year, though it lagged the robust pace in the second half of 2024.

Growth also accelerated in Europe. The UK's composite PMI climbed to a six-month high, and the PMI edged higher in the eurozone. Although the eurozone's expansion was marginal, it was the best recorded for seven months. In contrast, Japan deviated from the improving trend, reporting the first decrease in output since October 2024 and the worst decline in more than three years.

Sector output trends

Pockets of growth were rare. Of the G4 economies, only the eurozone reported an improvement in manufacturing output during March, with growth reviving for the first time in two years. While there were also some more encouraging reports of improved domestic demand, the upturn was in part linked to the advance shipping of goods to the US ahead of tariffs, providing a temporary boost. UK and Japanese production fell at increased rates, and US factory output slipped back into a decline in March after two expansions related to tariff front-running in the opening months of the year.

There was better news in the US and UK regarding service sector expansions, where growth reached three- and seven-month highs, respectively. However, some of this upturn in the US may be temporary as it was attributed to improved weather after two harsh months at the start of the year. Japan's services economy slipped back into decline for the first time in five months, partly reflecting constraints due to labor supply problems. Eurozone services growth also slowed, nearly stalling as firms reported a second month of falling new business inflows.

Confidence

Even less encouraging news came from the survey's business optimism gauges. Business expectations regarding growth across the G4 economies tumbled to their second-lowest reading since November 2022.

While US companies had been especially optimistic at the turn of the year, this confidence faded in March, which recorded the second-lowest sentiment since October 2022. Still, the drop in US confidence was largely limited to the services sector, where government spending cuts and tariff announcements dampened optimism. Tariffs provided a bit of a boost for the US goods-producing sector, with the promise of greater protectionism helping maintain confidence close to three-year highs in recent months.

Despite eurozone manufacturing sentiment likewise nearing a three-year high as companies anticipate higher government spending on defense and infrastructure, service providers in the single currency area were the gloomiest in 18 months. Geopolitics also dominated in Japan, where manufacturing confidence hit its second-lowest mark in nearly three years, and service sector sentiment sank to the lowest in more than four years.

Only the UK saw improved optimism among the G4 in March, though sentiment remained among the lowest recorded over the past two years amid concerns over tax hikes set to be implemented in April.

US manufacturers see impact from tariffs

Confidence in US manufacturing may be undermined if prices continue to rise at the pace witnessed in March. US factories reported their steepest rise in input costs for 31 months, with the rate of domestic inflation far outpacing seen in other G4 economies. Producers commonly blamed the higher prices on tariffs. Those costs were passed to customers, resulting in the highest rate of inflation for factory selling prices in a little more than two years, which could dampen demand in the months ahead if sustained.

Downside risks

The survey data suggests that business activity in the first quarter rose at its weakest rate in a year. Even that modest growth was in part the result of temporary factors, notably the advance shipping of goods from the eurozone to avoid tariffs and the return of better weather in the US. With business confidence falling among companies operating in the major developed economies, there is a strong suggestion of downside risks to growth heading into the second quarter.

Purchasing Managers' Index data is compiled by S&P Global for more than 40 economies worldwide. The monthly data is derived from surveys of senior executives at private sector companies and is available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and subindexes, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data is used by financial and corporate professionals to better understand where economies and markets are headed and to uncover opportunities.

Data and insights for this article were compiled by Chris Williamson, chief business economist for S&P Global Market Intelligence.