Business activity in the euro area accelerated in April, the fastest in almost a year, thanks to “increasingly robust” growth in the key services sector, which more than offset a deep economic downturn in manufacturing. It grew at a faster pace, a high-profile study showed on Tuesday.
The divide between service companies and factories was also evident in the country breakdown of Germany and France, the region's two largest economies and the only countries to publish preliminary figures.
The preliminary Eurozone Purchasing Managers' Index (PMI) compiled by S&P Global was 51.4 this month, up from 50.3 in March.
It was the highest level in 11 months. A number above 50 indicates growth, and a number below indicates contraction.
This figure far exceeded the Reuters poll's forecast (50.7) and exceeded the 50 level, which is the dividing line between growth and contraction, for the first time in two months.
“The eurozone economy has returned to growth. The services sector PMI rose further in April…However, the picture is clouded by an unexpected decline in the manufacturing index,” said Christoph Weil of Commerzbank. said.
The survey showed that manufacturing activity was expanding “moderately”, although the decline was not as steep as before, as manufacturing production continued to decline.
“Growth in the services sector has been increasingly robust, despite signs that the manufacturing downturn is easing further,” S&P Global said.
The flash services PMI rose to 52.9 from 51.5 last month, beating the median forecast in a Reuters poll of 51.8 for a smaller rise.
However, the manufacturing PMI fell from 46.1 to 45.6, confusing expectations for an increase to 46.6. It will be below 50 from mid-2022 onwards.
However, the index measuring manufacturing output rose from 47.1 to 47.3.
Indicators measuring demand also highlighted the divide between the two sectors. The service industry new business index rose to 52.1, the highest level in 11 months, but the manufacturing industry new orders index fell from 46 to 43.8, the lowest level in four months.
Private sector activity in Germany, Europe's largest economy, returned to growth this month due to a solid increase in activity in the country's services sector and a moderation in the rate of decline in factory production.
In France, key services industries expanded for the first time in almost a year, helping to offset continued weakness in manufacturing.
Meanwhile, business activity outside the European Union (EU) in Britain posted its fastest rise in nearly a year, showing that the recovery from last year's shallow recession was stronger than economists expected.
Optimism remained strong across the eurozone, with companies adding staff at the fastest pace since June last year. The overall employment index rose from 50.9 to 51.8.
Economists said the data showed the 20-nation single currency was emerging from the recent economic downturn, but the European Central Bank (ECB) was still likely to cut interest rates in June.
“The higher-than-expected rate hike…suggests that the eurozone is emerging from recession, but does not suggest that the ECB will cut rates in June,” said Andrew Kenningham of London-based consultancy Capital Economics. It's not a hindrance.”
“While these surveys are good news for the economy, we suspect growth will remain quite weak in the short term,” he added.
The ECB has raised interest rates at a record pace to stem spiraling price increases, but calls for rate cuts are growing as euro zone inflation approaches the ECB's 2% target. Inflation slowed to 2.4% in March.
