Demand drives the euro zone economy: commercial activity increases for the third consecutive month in May, and the pace of growth accelerated to reach its highest level since May 2023. The surge in Spanish business activity is consolidated and reaches peak levels 14 months.
He HCOB PMI Composite Index of Total Activity of the Euro Zone stood at 52.2 (51.7 in April) and business confidence reaches its highest in 27 months; according to the private economy indicator published today by S&P Global. The HCOB PMI Index of Business Activity in the Euro Zone Services Sector remains at 53.2 (53.3 in April) and inflation rates are attenuating but remain above pre-pandemic averages.
The most solid conditions of the demand They supported increased production and hiring and the pace of growth was only slightly slower than that seen on average since data first became available in 1998.
Of the four main economies of the euro zone, France was the outlier in May, as a marginal and renewed contraction in private sector activity contrasted with growth in Germany, Spain and Italy. The position of Spain as the country with the best performance consolidates as its economic growth strengthened, accelerating to its 14-month high.
The largest economy in the block, Germany also recorded a marked recovery, and total activity volumes increased at the fastest pace in a year. On the other hand, the economic expansion of Italy lost momentum and slowed to its weakest level since February.
Strengthening demand conditions was one of the key reasons responsible for the rebound in total euro zone business activity, especially in services, while the slowdown in factory orders eased noticeably compared to the previous month.
Overall, growth expectations have improved in seven of the last eight months and positive sentiment reached its highest level since February 2022. Eurozone companies increased employment levels for the fifth consecutive month and the rate of employment creation It coincided with that of April, the fastest since June 2023. The service sector was once again the driving force of job hiring in May, as staffing numbers were reduced in factories.
As for the prices, inflationary pressures ease in the middle of the second quarter. However, the rise in input costs remained steep and well above its pre-pandemic average. The picture was similar for prices charged: the rate of sales price inflation slowed to a six-month low, but remained considerably steeper than that seen on average before 2020.
Price pressures in the Eurozone service sector economy remained elevated, despite easing. The inflation rates of purchasing prices and selling prices decreased to their lowest level in three years and seven months respectively. Looking ahead, expectations for service sector activity over the next twelve months became more positive in May.
Recession specter disappears
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, emphasizes that “the specter of recession is no longer in sight. This is due to the services sector, where the rebound has recently spread.”
“In Germany we can now speak of an upward trend; meanwhile, business activity in Italy remains solid and Spain has improved from an already solid position. Only France has experienced a setback and has fallen slightly into territory. “Overall, the services sector is likely to ensure that the eurozone economy returns to positive growth in the second quarter.”
The Composite PMI index, which shows a real-time snapshot of GDP, gives good news to the European Central Bank (ECB). “Components of the service sector price PMI index indicate a slight attenuation of inflationary pressures, making it more likely that the ECB cut interest rates on June 6″.
“The moderation of inflationary pressures is evident both in purchase prices and in sale prices. It is anticipated that this development will be mentioned explicitly in the press conference of the President of the ECB, Christine Lagarde, in contrast to the unexpectedly high salary increases mentioned in the first quarter. However, the PMI price indices do not yet give the green light, as they are unusually high in the context of a rather weak economic situation.”
