Economic activity in the Eurozone has seen its fastest growth in almost a year, suggesting a recovery from its recent economic doldrums, as revealed by a closely watched corporate survey.
Although manufacturing underwent a period of weakness, a surge in the services sector contributed to the boost in the S&P Global’s monthly Eurozone business activity measurement for April, outpacing most economists’ predictions. This growth was accompanied by an increase in price pressures, as service businesses bore the brunt of rising wage expenses.
The Eurozone’s flash composite purchasing managers’ index, used by decision-makers as a preliminary indicator of economic health, rose to a high of 51.4 in April, an 11-month peak and a jump from the previous month’s reading of 50.3. This surpassed Reuters’ economist projections which anticipated a lower figure of 50.8.
These figures are expected to reassure European Central Bank (ECB) officials that the Eurozone’s economy is on course for a gentle slowdown, successfully sidestepping a recession while systematically reducing inflation towards their 2% goal.
S&P revealed that companies witnessed modestly larger increases in their prices compared to the preceding month, a trend influenced by mounting labour costs and the rise in energy and fuel expenses, suggesting persistent inflationary pressures. However, Andrew Kenningham, an economist from Capital Economics, emphasised that these pressures are still within their long-term averages, and do not yet raise concerns for policymakers.
Market participants envisage the ECB to commence a series of cuts to its record-high benchmark deposit rate of 4% at its June 6 meeting. ECB vice-president Luis de Guindos, in an interview with Le Monde, asserted this is now a done deal, provided price pressures remain manageable.
The Eurozone’s PMI has been incrementally rising for half a year, indicating an upturn after the economy largely stalled throughout 2023. Cyrus de la Rubia, Hamburg Commercial Bank’s chief economist, suggested this data indicates the Eurozone has regained some momentum, with a projected quarterly GDP growth of about 0.3% since the year’s outset.
However, there is a growing disparity between the robust services industry and the faltering manufacturing sector. While services companies enjoyed the quickest rise in new orders since May 2023, the manufacturing industry signalled that their two-year downward trend in demand had further deteriorated in April.
Christoph Weil, an economist connected to Commerzbank in Germany, expressed his concern over the continual weak growth state in the overall eurozone this year, due to the struggling manufacturing sector. Contrary to the positive expectations of a significant upturn from various economists and the ECB in the upcoming year, Weil voiced his reservation.
Despites facing difficulty within its manufacturing sector, the Purchasing Managers’ Index (PMI) of Germany managed to advance past the pivotal 50 threshold, splitting growth from decline, a feat it had not achieved in the last 10 months. While a marginal improvement was noted in French readings, it still fell short of escaping the contraction zone.
The wider eurozone region is reported to have performed impressively, albeit a slight reduction in its growth speed, as reported by S&P. On the contrary, the United Kingdom demonstrated robust growth, with its flash composite PMI output surging from 52.8 in March to 54 in April, surmounting the 52.6 economists’ prediction gathered by Reuters. The content shared above is protected by the copyright laws of The Financial Times Limited, 2024.