Eurozone Private Sector Expands Most In 11 Months

Eurozone private sector activity expanded at the fastest pace in nearly a year in April, driven by the reviving demand in the service sector and was accompanied by a sharp increase in employment amid a moderation in inflationary pressures and resilient business confidence, the results of the latest purchasing managers’ survey by S&P Global showed Friday.

The seasonally adjusted HCOB flash composite output index rose to 54.4 in April from 53.7 in the previous month. The score was expected to remain steady at 53.7.

The reading rose for the sixth month in a row and remained above the critical 50.0 threshold for the fourth successive month. This suggested the biggest growth in the private sector since May 2022.

The indicator had slid into a near two-year low in October last year when concerns about the European energy crisis that was triggered by the war in Ukraine were pronounced.

The survey showed that the strong growth in the Eurozone private sector was driven by the service sector, which logged its strongest expansion in a year.

On the other hand, manufacturing activity contracted at the steepest pace in four months.

The services Purchasing Managers’ Index, or PMI, hit a 12-month high of 56.6 from 55.0 in March. The expected reading was 54.5.

The manufacturing PMI continued to remain below the 50-mark threshold in April, falling to a 35-month low of 45.5 from 47.3 in the previous month.

New orders received by the private sector showed a faster increase at the start of the second quarter on the back of accelerated growth in new business in the service sector, which logged its sharpest rise in one year.

The overall increase in employment was the strongest in 11 months amid a pick up in the service sector jobs growth to the quickest since July 2022. Meanwhile, manufacturing employment eased to the lowest seen over the past 27 months.

On the price front, input costs inflation moderated markedly to the lowest since February 2021, which was more evident across the manufacturing sector due to reduced costs for energy and the recent easing in supply chain shortages.

Charge inflation eased markedly to the lowest level since February 2021.

Looking ahead, output expectations in the next twelve months dropped further from February’s 1-year high, as there were slight downturns in both manufacturing and services.

Eurozone’s two largest economies, Germany and France, registered a sharp upturn in private sector activity in April.

Germany’s composite PMI output index climbed to a 1-year high of 53.9 in April from 52.6 in March. Economists were looking for a score of 52.7.

The growth was driven by the country’s service sector, while manufacturing activity showed a slight expansion over the month.

The services PMI for Germany clocked a 12-month high of 55.7, which was well above the 53.3 that economists had forecast. The corresponding measure for the factory sector dropped to a 35-month low of 44, which was below the 45.7 economists had predicted.

France’s private sector also grew for the third consecutive month in April. The composite PMI improved to 53.8 from 52.7 in the previous month. The score was expected to remain stable at 52.7.

The French services PMI hit an 11-month high of 56.3, while the factory measure sank to a 35-month low of 45.5. Economists had forecast readings of 53.4 and 47.8, respectively.

Commerzbank economist Christoph Weil said services will hardly be able to decouple themselves from the downturn in the manufacturing sector in the long term.

“Business-related services in particular are likely to feel the effects of the weakness soon,” Weil said.

“In addition, the significant rise in interest rates will also slow demand for services with the usual time lag.”

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