Just as the mood of pessimism about Europe's competitiveness could not be more widespread, further green shoots are beginning to emerge on the economic front. Of course, structural and cyclical factors are very different, but the current mood may slightly exaggerate Europe's economic misery. After a long period of economic stagnation following the energy crisis, growth in the euro area economy is expected to accelerate in the coming quarters.
The euro zone business confidence index rose slightly from 95.5 to 96.3. The slight improvement in sentiment was widespread not only among consumers but also among industrial and service companies.
In the manufacturing industry, the order intake indicator recently bottomed out and was the strongest reading since November, albeit at a very low level. Still, this could be a cautious green shoot for manufacturing, with export orders following a similar pattern and inventories also declining slightly. Although production trends have been declining for some time, the slightly improving global situation suggests that some recovery may be possible in the second half of this year.
Although service sector activity remains weak, companies are increasingly optimistic about the outlook for the coming months. Improvements in real wages are also expected to encourage consumers to spend more on services in the second half of the year. The survey shows that services inflation is expected to moderate as activity is currently slowing. Although sales price expectations for the service sector continue to rise, they have fallen to their lowest level since September. For the European Central Bank, this will provide important reassurance that services inflation is not accelerating again.
Overall, the euro area economy appears to be starting to show signs of imminent growth. Nothing spectacular, but the end of stagnation is still underway. With inflation expectations in the services sector becoming more moderate, the ECB could start cutting rates from June, contributing to a more favorable environment.
