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Eurozone economic growth accelerated in April as a rebounding
service sector, benefitting from loosened COVID-19 restrictions,
helped compensate for a near-stalling of manufacturing output.
Hiring also picked up and business expectations for the year ahead
lifted from March's 17-month low, albeit with confidence remaining
subdued by recent standards as concerns over the Ukraine war,
rising prices and the lingering effects of the pandemic continued
to dampen optimism, especially in manufacturing. Prices charged for
goods and services meanwhile rose at an unprecedented rate in April
amid another near-record rise in firms' costs, hinting that
inflation has further to rise.
Business growth accelerates
The S&P Global Eurozone PMI® Composite Output Index rose
from 54.9 in March to 55.8 in April, according to the preliminary
'flash' reading, signalling the strongest rate of expansion since
last September and confounded consensus expectations of the economy
slowing during the month. The latest reading is broadly indicative
of GDP rising at a solid quarterly rate of just under 0.7%.
S&P Global Eurozone PMI and GDP
Manufacturing and service sector output
growth
Service sector buoyed by looser
restrictions
Growth trends varied markedly by sector. Business activity among
service providers rose at the fastest rate since last August amid
falling COVID-19 case numbers and an associated relaxation of
health restrictions. April has seen virus containment measures
relaxed across the eurozone to the loosest since the start of the
pandemic, according to S&P Global's COVID-19 Containment
Index.
Eurozone services output v. official data
The service sector upturn was led by a boom in tourism &
recreation activity, which reported an unprecedented surge in
business activity.
Manufacturing close to stalling
In contrast, manufacturing output growth came close to stalling
in April, registering the smallest monthly expansion since the
initial pandemic downturn during the second quarter of 2020. The
autos sector was particularly hard hit, recording a steepening and
marked loss of output, though all other major manufacturing sectors
barring tech equipment reported either slower growth, stagnation or
outright falls in output.
Eurozone manufacturing output v. official
data
Many companies suffered production curbs due to ongoing supply
constraints, with April seeing further widespread reporting of
longer supplier delivery times. Disruptions emanating from the
Ukraine war and fresh lockdowns in China exacerbated existing
supply issues.
However, demand was also reported to have cooled in the
manufacturing sector. New orders for goods rose at the weakest rate
since June 2020, registering only a modest increase. Lost orders
were blamed on soaring prices, the cost of living squeeze and signs
of increased risk aversion due to the Russia-Ukraine war, as well
as the shift of spending to service sector activities.
Prices rise at new record rate
Although input cost inflation eased slightly, the rise was still
the second largest ever recorded by the survey since comparable
data were first available in 1998, led by a new record high in
Germany. In addition to rising raw material prices, firms widely
reported upward pressure on costs from energy and wages.
Higher costs were passed on to customers resulting in the
largest rise in prices charged for goods and services yet recorded
by the survey, the rate of increase accelerating markedly from the
prior all-time high seen in March. New record rates of inflation
were seen for both goods and services.
Input costs and selling prices
PMI input prices and eurozone CPI inflation
Outlook
Despite increasing inflationary pressures, supply chain
disruptions and the war in Ukraine, business optimism about the
year ahead improved slightly compared to March, albeit remaining
considerably gloomier than at the start of the year.
Future output expectations
The brightening picture was led by the service sector,
principally reflecting hopes of further growth benefits from pent
up demand from the pandemic. While optimism also picked up in
manufacturing, prospects in the factory sector remain far bleaker
than seen over the past two years.
The eurozone has therefore started the second quarter on a
stronger than anticipated footing, confounding consensus
expectations of a slowdown. However, the weakness of the
manufacturing sector is a major concern as it points to an economy
that is not firing on all cylinders. Similarly, the ever-rising
cost of living suggests that service sector growth could cool
sharply once the initial rebound from the opening up of the economy
fades, especially if business confidence fails to revive.
Policymakers may nevertheless tilt to a more hawkish stance,
reflecting the persistence of unprecedented inflationary pressures
at a time of encouragingly robust economic growth.
Eurozone PMI prices and output vs. ECB policy
decisions
Chris Williamson, Chief Business Economist, S&P
Global Market Intelligence
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
At the same time, business costs increased at historically elevated rates, with new record levels of cost inflation… https://t.co/ofDaBfq7KX
May 25
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