Euro zone business growth hits three-year high on services resurgence

LONDON (Reuters) – Euro zone business growth accelerated at its fastest pace in over three years in May, as a strong resurgence in the bloc’s reopening service industry added to the impetus from an already-booming manufacturing sector, a survey showed on Friday.

FILE PHOTO: People enjoy an evening drink at Place de la Contrescarpe in Paris as cafes, bars and restaurants reopen after closing down for months amid the coronavirus disease (COVID-19) outbreak in France, May 19, 2021. REUTERS/Sarah Meyssonnier

After a slow start to vaccination programmes across the region the pace is picking up, allowing some restrictions imposed to quell the spread of the coronavirus to be lifted.

A deal agreed by the European Union on Thursday to open up tourism across the 27-nation bloc this summer should provide a boost to tourism-dependent economies that were hammered by restrictions last year.

With more businesses reopening – or at least adapting to lockdowns – IHS Markit’s flash Composite Purchasing Managers’ Index, seen as a good guide to economic health, climbed to 56.9 from April’s final reading of 53.8.

That was its highest level since February 2018 and comfortably above the 50 mark separating growth from contraction, as well as the more modest increase to 55.1 predicted in a Reuters poll.

The bloc’s economy will expand 1.4% this quarter, according to a Reuters poll last week that also found forecasts for the rest of the year had been downgraded from last month. [ECILT/EU]

“May’s increase in the euro zone Composite PMI reflects the further lifting of virus restrictions in many parts of the region and suggests that the economic recovery is now underway,” said Jessica Hinds at Capital Economics.

In Germany, Europe’s largest economy, services activity rose by the most in nearly a year, helped by a loosening of restrictions. But supply bottlenecks in manufacturing led to production problems at a growing number of factories.

The lifting of a lockdown in France unleashed a business boom there, with activity surging past expectations to set the stage for an economic rebound.

Slideshow ( 2 images )

In Britain, outside the European Union and its common currency area, the flash composite PMI hit a record high. Many services firms reopened their doors and factories rode a wave of demand from a recovering global economy, prompting a jump in both hiring and prices.

Data on Friday also showed British retail sales surged in April, with shoppers splashing out on new clothes as they were allowed out to socialise after shops reopened following months of lockdown closures.

“April was always likely to see a further surge in sales as stores reopened for the first time in months – with fashion retailers the ultimate beneficiaries of beer gardens reopening and the ‘rule of six’ night out returning,” said Aled Patchett at Lloyds Bank.

INFLATIONARY PRESSURES

A preliminary PMI covering the 19-country euro zone’s dominant service industry bounced to 55.1 from April’s 50.5, well above the 52.3 median forecast in the Reuters poll and its highest since June 2018.

Services firms benefited from the release of pent-up demand. The new business index – which has been below 50 almost throughout the pandemic – soared to 56.7 from 49.7, its highest since January 2018.

The manufacturing industry has weathered the coronavirus crisis much better than services as factories largely remained open. Its flash PMI dipped from April’s record high of 62.9 to 62.8 but was ahead of the 62.5 Reuters poll estimate.

An index measuring output that feeds into the composite PMI dropped to 61.9 from 63.2.

But supply-side issues have made it a seller’s market for purveyors of raw materials and factories faced a record increase in input costs. The sub-index soared to 86.5 from 82.2, its highest since the survey began in June 1997.

“The combination of demand returning quickly for services and input shortages emerging are creating a perfect environment for surging pipeline inflation,” said Bert Colijn at ING.

Hopes the vaccine rollout is successful and that the worst of the pandemic is behind the bloc pushed overall optimism to its highest since IHS Markit began collecting the data in July 2012. The composite future output index rose to 69.7 from 68.9.

Official data due later on Friday is expected to show consumer confidence in the bloc also improved this month. (reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/econ-polls?RIC=EUCONF%3DECI)

Source: Read Full Article