Buoyant service sector helps boost Eurozone economy

The latest flash HCOB Composite PMI Output Index, compiled by S&P Global, was 54.4, up on March’s 53.7 and an 11-month high. It was also well above consensus expectations of 53.7.

Within that, the manufacturing output index fell below the neutral 50.0 level, to 48.5 from 50.4 in March, while the manufacturing PMI slid from 47.3 to 45.5, a 35-month low.

However, the services PMI business activity index rose to a 12-month high of 56.6 from 55.0 a month earlier.

The survey also showed the largest increase in employment for nearly a year, while inflation pressures continued to ease.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said: "The indices show a very friendly overall picture of an economy that continues to recover. However, growth is very unevenly distributed. The gap between the partly booming services sector and the weakening manufacturing sector has widened further.

"The sharp decline in output in France’s manufacturing sector is also noteworthy, while this sector is still expanding slightly in Germany."

The composite PMI output index for Germany rose to 53.9 in April from 52.6 a month earlier, while in France it increased to 53.8 from 52.7. France’s manufacturing sector has been hit by disruption caused by ongoing industrial action over proposed pension reforms, but its service sector remains buoyant.

Melanie Debono, senior Eurozone economist at Pantheon Macroeconomics, said: "The recovery is picking up pace but also becoming increasingly lopsided. The increase in Eurozone private sector activity at the start of the second quarter was driven exclusively by a jump in services output, which rose for a third straight month as demand recovered.

"Easing supply chain pressures meant that input price inflation softened. Input costs in manufacturing fell, at the fastest pace since June 2020, but were still rising fast in services due to higher staffing costs. Still, firms across both sectors raised their prices again.

"We currently expect the ECB to hike by 50 basis points in May before calling it quits."

Rory Fennessy, European economist at Oxford Economics, said: "The strength of services activity is very much at odds with still-high inflation and depressed real incomes.

"The flash PMIs pose further upside risks to our near-term GDP forecasts across the region. But stronger growth in the first half will give way to a weaker outlook in the second half and into 2024 as the impact of tighter financial conditions feed further into the real economy."

Data for the surveys were collected from a representative panel of around 5,000 companies between 12 and 19 April. A reading above 50.0 indicates growth while one below suggests contraction.