Although the rise in PMI is encouraging, we cannot yet expect a significant recovery in GDP growth in the first quarter. Still, momentum is building in the services sector, with PMI rising from 50.2 to 51.1. Business activity here is gradually recovering and businesses are becoming more optimistic about the outlook. Although the pace of decline in both production and new orders is slowing, new orders continue to decline, and the manufacturing industry continues to struggle.
The ECB's interest rate outlook depends largely on how wage growth and services inflation develop. Services inflation has been rising month-on-month in recent months, and the PMI shows that service cost pressures eased in March and service production prices moderated. This could be taken as an encouraging sign that price pressures that could pose an obstacle to a June rate cut are not accelerating further at this point.
So, while the first quarter remains a difficult battle for the eurozone economy, there are some green shoots emerging. GDP growth has been more or less stagnant since the second half of 2022, but we expect it to pick up cautiously into the summer. With real wage growth now positive, consumers are gradually regaining purchasing power, and a lot is on the line for them. With cautious interest rate cuts expected, the investment environment should gradually become more attractive. However, as today's PMI shows, the economy remains weak for the time being.
