Eurozone business activity grows at fastest rate for a nearly a year

Business activity in the eurozone grew at the fastest pace for nearly a year in April, according to preliminary data released on Tuesday.

The HCOB flash composite purchasing managers’ index rose to 51.4 from 50.3 in March, hitting an 11-month high. This was above the 50.0 mark that separates contraction from expansion and ahead of consensus expectations for a reading of 50.7.

The services PMI increased to 52.9 from 51.5 and the manufacturing output PMI ticked up to 47.3 from 47.1.

The composite PMI for Germany rose to 50.5 in April from 47.7 the month before, while the PMI for France increased to 49.9 from 48.3.

Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: "The eurozone got off to a good start in the second quarter. The composite HCOB flash PMI took a significant step into expansionary territory. This was propelled by the services sector, where activity has gathered further steam. Considering various factors including the HCOB PMIs, our GDP forecast suggests a 0.3% expansion in the second quarter, matching the growth rate seen in the first quarter, both measured against the preceding quarter.

"The PMI figures are poised to test the ECB's willingness to cut interest rates in June. Accelerated increases in input costs, likely driven not only by higher oil prices but also, more concerningly, by higher wages, are a cause for scrutiny.

"Concurrently, service sector companies have raised their prices at a faster rate than in March, fuelling expectations that services inflation will persist. Despite these factors, we expect the ECB to cut rates in June. However, we doubt that the central bank will adopt a ‘pragmatic speed’, as suggested by François Villeroy de Galhau from the ECB. Instead, we expect a more cautious approach."

Andrew Kenningham, chief Europe economist at Capital Economics, said: "While these surveys are good news for the economy, we suspect that any growth will be remain quite weak in the near term. Households will benefit from the effects of falling inflation but this will be offset by tighter fiscal policy, declining construction activity and sluggish external demand."