Eurozone private sector momentum hits one-year high in May

LONDON (ICIS)–Business momentum in the eurozone hit the highest level in 12 months in May, pushing further into growth territory as service sector orders surged and the manufacturing industry showed signs of recovery.

The eurozone composite purchasing managers’ index (PMI) rose to 52.2 during the month compared to 51.7 in April as stronger demand buoyed output and hiring, according to data from S&P Global.

Momentum improved for most of the eurozone’s largest economies with the exception of France, where a renewed contraction in private sector activity drove PMI growth back into negative territory at 48.9, a two-month low. A PMI score of above 50.0 signifies growth.

Growth in Germany, which has suffered a deeper and more protracted downturn than most of the core economies, continued to rally on the back of improved output to  a 12-month high of 52.4.

Italy’s recovery slowed during the month, dropping to a three-month low of 52.3, while Spain remained the strongest core performer with activity rallying to a 14-month high of 56.6.

The sustained strong momentum points to an exit from contraction for the eurozone economy, despite eurozone manufacturing activity in the bloc remaining in recession footing.

According to data released earlier this week, the manufacturing sector’s PMI rose to a 14-month high of 47.3 in May, despite remaining some ways short of stabilising.

“The spectre of recession is off the table,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which helps to assemble the composite data. “In Germany, we can now talk of an upward trend, Italy’s business activity remains solid, and Spain has improved from an already strong position. “

“Only France has experienced a setback, slipping into slightly negative territory. Overall, the service sector is likely to ensure that the Eurozone will show positive growth again in the second quarter,” he added.

Inflationary pressure also eased during the month, despite an increase in overall levels for the eurozone according to flash estimates from statistics body Eurostat issued last week. Inflation is expected to be 2.6% in the eurozone for May compared to 2.4% in April on the back of higher service and food price inflation.

Overall price gauges indicate cooling inflationary pressures during the month, according to the PMI data, but input cost increases remained sharp and well above pre-pandemic levels.

The rate of inflation for output costs eased to the lowest level in six months, but was still substantially above pre-2020 averages.

The European Central Bank is set to make a decision on whether to cut interest rates for the first time in eight years on Thursday.

“The European Central Bank (ECB) is getting a tailwind from the PMI,” said de la Rubia. The PMI price components for the service sector indicate a slight easing of inflationary pressures, making an ECB rate cut on June 6 more likely. Reduced inflation pressures are evident in both costs and selling prices.”

“However, the PMI price indices do not yet give the all-clear, as they are unusually high in the context of the rather weak economic situation,” he added.

(Thumbnail photo: Cargo ships pulling into the port of Hamburg (Source: Fotowerkstatt-ks/imageBROKER/Shutterstock)