Eurozone business growth got boost from reopened services

Business activity in the eurozone accelerated last month as the bloc’s dominant services industry took advantage of a further loosening of COVID-19 restrictions, offsetting a near-stall in manufacturing output growth, a survey showed on Wednesday.

S&P Global’s final composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, rose to 55.8 in April from March’s 54.9, matching a preliminary estimate. Anything above 50 indicates growth.

“The eurozone economy has shown surprising resilience in the face of the Ukraine-Russia war, thanks to a renewed burst of service sector activity as virus containment measures were relaxed further during April,” said Chris Williamson, chief business economist at S&P Global.

A PMI for the services industry jumped to 57.7 last month from 55.6, its highest reading since August. That comes after a factory PMI for the region fell to a 15-month low of 55.5 in April, a sister survey showed on Monday.

With restrictions to contain the coronavirus easing and life returning to some form of normality, optimism improved and the services business expectations sub-index rose to 62.3 from 60.8.

But firms are still facing soaring costs and passed some of that burden onto consumers, so that the composite output price index leapt to 68.5 from 65.7, by far the highest reading since S&P Global began collecting the data in late 2002.

That is likely to raise bets the European Central Bank will tighten policy as inflation in the currency union was 7.5% last month, preliminary official date showed last week, almost four times the ECB’s 2% target.

“The combination of the stronger growth profile for the second quarter and a persistent acceleration of inflation signalled by the surveys will add to speculation that the ECB could start raising interest rates as soon as its July meeting,” Williamson said.

The ECB is expected to raise its deposit rate before year-end, a Reuters poll showed last month.

France’s dominant services sector enjoyed its sharpest increase in activity in more than four years in April as fewer COVID-19 restrictions gave businesses a boost, although inflation remained a concern, a survey showed on Wednesday.

S&P Global said its final services Purchasing Managers’ Index (PMI) was 58.9 points last month, up from 57.4 in March and broadly in line with a flash estimate.

Any reading above the 50 point mark indicates growth. The final services PMI number in April was the highest in any month since January 2018.

A final April reading of France’s composite PMI index, which includes both the services and manufacturing sectors, meanwhile rose to 57.6 points from 56.3 in March, broadly in line with an earlier flash forecast.

“It was another positive month for France’s services firms in April as business activity in the largest sector of the economy increased at the fastest rate in over four years,” said S&P Global senior economist Joe Hayes.

“The economy is still reaping the benefit of reduced COVID-19 restrictions as many companies linked strong and sustained growth in their order books to the pandemic recovery.” Rising prices were an issue, though, Hayes added.

Data last week showed French inflation jumped to a record high in April, reaching an annual rate of 5.4% as energy prices surged.

“Rising prices also pose a risk to the outlook for the sector. Output charges rose at the fastest rate on record in April, and some panellists were concerned about the impact of rising inflation on activity levels,” said Hayes.

Meanwhile, Italy’s services sector expanded in April at the strongest pace since November, a survey showed on Wednesday, brightening hopes for economic growth prospects in the second quarter amid reports of stronger domestic and foreign demand.

S&P Global’s Purchasing Managers’ Index (PMI) for services rose to 55.7 in April from 52.1 in March, pushing further above the 50 mark that separates growth from contraction.

The reading beat the median forecast of 54.5 in a Reuters survey of 14 analysts.

The sub-index for new business in the service sector jumped to 56.0 in April from 52.6 in March.

Italy’s service sector took longer to recover from COVID-19 lockdowns than the smaller manufacturing sector, which has seen growth for nearly two years.

The manufacturing PMI recorded its 22nd consecutive month of expansion in April, though growth slowed from the month before.

The composite PMI for services and manufacturing stood at 54.5 in April, up from 52.1 in March, the highest level since December and marking a 15th consecutive month of growth.

Italy’s economy contracted by 0.2% in the first quarter from the previous three months, weighed down by surging energy costs and broader uncertainty connected with Russia’s invasion of Ukraine.