LONDON, (Reuters) – Euro zone business activity was stronger than anticipated this month according to a survey. However, prices rose at a record rate, likely increasing pressure on the European Central Bank for higher interest rates.

A portion of this growth was due to a rebound after the lifting COVID restrictions. However, the outlook for the future is dimming as supply chain problems caused by coronavirus pandemic and Russia’s invasion in Ukraine have made the situation worse.

S&P Global (NYSE:)’s Flash Composite Purchasing Managers’ Index, seen as a good gauge of overall economic health, slipped to 54.5 in March from 55.5 in February although it was comfortably above the median 53.9 forecast in a Reuters poll.

Any number above 50 is considered to be growth.

“The survey data underscore how the Russia-Ukraine war is having an immediate and material impact on the euro zone economy, and highlights the risk of the euro zone falling into decline in the second quarter,” said Chris Williamson, chief business economist at S&P Global.

“The war has intensified existing supply chain and price pressures associated with pandemics.”

The survey saw both composite output and input prices indexes at their highest levels in history.

Inflation, which was already at record 5.8% for February, is expected to rise further, as the index of output prices rose to 65.7. It should be 2%, as the ECB wants it to.

The ECB announced earlier this month that it will stop pumping money into the financial markets in the summer. This opens the door to an increase of interest rates.

Although the PMI that covers the dominant sector of service in the bloc fell to 54.8, it still beat the Reuters poll estimate at 54.2.

The demand was strong and firms were able to increase their headcount faster due to more pandemic-related restrictions. Services employment index rose from 53.6 to 54.8.

Although factory activity was solid, the rate of growth has slowed to its lowest level since January 2013. While the PMI for manufacturing dropped from 58.2 to 57.0, this was higher than what we expected.

The composite PMI index, which measures output, fell to 53.6, from 55.5.

The high inflation rate and worries about Russia’s invasion of Ukraine have severely impacted optimism. After the outbreak of coronavirus, which occurred shortly after it began, the factory output index dropped to 53.8. It was 68.5 before falling to 53.8.

Williamson explained that “businesses themselves are bracing for less economic growth with hopes of future output falling in March, as companies grow more concerned about the effect of war on an already struggling economy from the pandemic.”