The eurozone’s economic recovery gathered pace in May, recording notable increases in business activity, new orders and employment. In May, business confidence hit a 27-month high. Meanwhile, inflation rates for both input costs and output prices softened from April. However, they remained above pre-pandemic averages.
The latest S&P Global HCOB Flash Eurozone Composite Purchasing Managers’ Index (PMI) Output Index rose to 52.3 this month from April’s 51.7, signaling an increase in business activity across the euro area’s private sector for the third consecutive month. Moreover, the eurozone’s rate of expansion was strong, rising for the second month in a row to the fastest pace in a year.
“We are heading in the right direction. Considering the PMI numbers in our GDP nowcast, the eurozone will probably grow at a rate of 0.3 percent during the second quarter, putting aside the specter of recession,” commented Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, on the results.
Service sector supports economic recovery
The eurozone’s economic recovery remained dependent on the services sector. However, manufacturing production neared stabilization in May, declining marginally to the least extent in 14 months. Germany saw a sharper increase in business activity while France saw a decline in output following a slight rise in the previous month. In Germany, output saw an increase for the second month in a row as the pace of growth rose to a one-year high. Meanwhile, France’s business activity fell, following an increase in April.
“This time, there is also some good news for the European Central Bank (ECB) as the rates of inflation for input and output prices in the services sector has softened compared to the month before,” added Dr. de la Rubia.
Employment
The eurozone’s economic recovery is on track in May as expansion across the area prevailed with output increasing at the fastest pace since April 2023. In addition, the pace of job creation was modest but rose at the fastest pace since June 2023. With output and new orders rising, staffing levels in the eurozone’s service sector saw an increase while manufacturing employment continued to fall.
The eurozone’s manufacturing sector continued to fall in May. Therefore, firms continued to decrease their purchasing activity. Stocks of both purchases and goods saw a greater decline compared to April. However, the lack of pressure in supply chains allowed suppliers to shorten their delivery times, raising their performance to a four-month high.
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Future outlook
The eurozone’s signs of economic recovery prompted optimism among companies regarding the future path for business activity in May, with confidence reaching the highest levels since February 2022. Moreover, sentiment was higher than the series average as the economic recovery gained momentum. PMI reported stronger optimism in both the manufacturing and services sectors. The rise in optimism in Germany supported overall confidence, while the fall in output in France impacted sentiment there. Confidence in the eurozone’s 12-month outlook for activity remained stable across the rest of the euro area.
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