New orders rising at fastest pace in more than a year, boosting economic growth: PMI rises to one-year high of 52.3.
The economic recovery in the euro zone gains momentum in May, the third consecutive monthly advance: commercial activity, new orders and employment grow in the middle of the second quarter, and business confidence reached its highest level in almost two and a half years (27 months ), while inflationary pressure declines.
The services sector remained the main economic driver, but the industry has almost stabilized after 14 straight months of contraction.
He Composite PMI index of total activity in the euro zone of S&P Global for HCOB, which reflects the economic activity of the private sector and precedes the evolution of GDP, stood at the level of 52.3 in May (51.7 in April), registering its highest in the last twelve months.
The index PMI for Commercial Activity in the Services Sector remains at 53.3 and the PMI of Manufacturing Sector Production It stood at 49.6 (47.3 in April), without yet exceeding the range of 50 points that divide the contraction of growth but at 14-month highs. He Manufacturing PMI As a whole, it rises to 47.4 from 45.7, a 15-month high.
At the same time, input cost and sales price inflation rates eased compared to April, although in both cases they remained above pre-pandemic averages.
This renewed economic growth in the euro zone, after a sequence of sustained decline in the second half of 2023 and early 2024, has been solid, accelerating for the second consecutive month to reach the fastest pace in the last 12 months.
The growth of new orders It also strengthened in May, driven by solid expansion in the services sector, the latest increase of which reached a thirteen-month high.
More intense increases were recorded in Comercial activity in Germany and in the single currency bloc (excluding France and Germany). However, France has seen a decline in total activity after a slight increase in April. Again the most robust expansion was seen in the rest of the euro zone, where total activity increased at a marked pace, which was the fastest since April 2023.
He employment increased to its best pace since June 2023 concentrated in services, while employment in the manufacturing sector continued to decline. Rates of inflation Input costs and prices charged softened, but in both cases they remained above the pre-pandemic average. However, in the services sector, inflation is moderating to three-year lows.
Eurozone companies were more optimistic and trust It reached its highest level since February 2022 and optimism is increasing in Germany, although not in France. Confidence in the outlook for the next twelve months for total activity has hardly changed in the rest of the euro zone.
“Are we heading in the right direction”
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank (HCOB), notes in a commentary accompanying the report that “The results couldn’t have been better.“. The euro zone economy is strengthening further (…). There are also some good news for the European Central Bank (ECB) since the inflation rates of prices paid and collected in the services sector have softened compared to those of the previous month. This development will support the ECB’s apparent desire to cut interest rates at the June 6 meeting”. However, the improvement in the inflation situation will probably not be enough for him to announce that other rate cuts will follow the same path.”
“We are heading in the right direction. Taking into account the PMI numbers from our real-time GDP estimate, The euro zone will probably grow at a rate of 0.3% in the second quarterburying the specter of recession.
“It seems reasonable to expect that a GDP growth of almost 1% this year, and there is even some upside risk. However, De la Rubia recalls that the recession in the manufacturing sector is still present.
“The German economy is eclipsing the French one, driven by a growing services sector while the French services sector contracts. “The evolution of the manufacturing sector is less severe in France, but as in Germany, the industrial sector has not emerged from the recession yet.”
“While people love to compare the results of different economies and point out possible weaknesses and strengths, the good news in this regard is that, in general, both economies move in parallel. This means that there is a good chance that “France’s services sector finally catches up, which would put euro zone growth on a more solid footing.”
