Eurozone business activity speeds up in May

LONDON

Business activity in the eurozone accelerated in May, while prices charged by businesses "softened" from the previous month, a key survey said on Thursday.

The HCOB Flash Eurozone purchasing managers' index (PMI) published by S&P Global recorded a figure of 52.3, up from 51.7 in April and the highest in 12 months.

Any reading above 50 indicates growth, while a figure below 50 shows contraction.

The data shows the single currency area's economy is "gathering further strength," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank (HCOB).

Meanwhile, the rates of inflation for "both input costs and output prices softened from April" which will be "good news" for the European Central Bank, he said.

"This will be supportive for the apparent stance of the ECB to cut rates at the meeting on June 6," de la Rubia said.

But he warned "the better inflation outlook will most probably not be enough for the central bank to announce that further rate cuts will follow suit."

Based on the data, HCOB expects growth of 0.3 percent in the second quarter of 2024.

In the first three months of the year, the 20 countries making up the single currency area grew by 0.3 percent, according to official EU data.

According to Rory Fennessy, senior eurozone economist at Oxford Economics, the eurozone's recovery "will be gradual, as monetary policy loosening won't deliver a meaningful boost to growth until next year".

The rise in the PMI index was driven by the services sector, where activity rose by a fourth consecutive month, helped by new business.

But the manufacturing sector remained below 50, although its decline slowed.

The European Union's biggest economy, Germany, is faring better after a difficult 2023.

"The German economy is outshining the French one, driven by a robustly growing services sector which is shrinking in France," de la Rubia said.

But he added there were "good chances" that France's services sector would catch up.