Eurozone economy picks up pace in May driven by services sector

S&P published PMI data for the eurozone in April on Thursday. The index increased for both industry and services.

According to S&P Global data, the revival has been primarily driven by the services sector, where the business activity index maintained April's growth pace at 53.3 points. New orders in services grew at the fastest pace in 13 months.

Meanwhile, in the industry sector, production continued to decline, although to the smallest extent in 14 months. New orders contracted at the lowest rate in 2 years. However, overall demand growth was limited by the weakness of export markets; foreign orders have been decreasing for the 27th consecutive month, although slower and slower.

The S&P Global report highlights divergent trends in the two largest eurozone economies. In Germany, production increased for the second consecutive month at the fastest pace in a year. In France, business activity dropped after growing the previous month. The strongest expansion was recorded in other eurozone countries, with the highest growth rate since April 2023.

May data also showed increased employment in the eurozone, which rose for the sixth consecutive month and at the fastest pace since June 2023. Here, too, the main driving force was the services sector, while employment continued to decline in industry.

Companies looked ahead with optimism; the future production index reached its highest level in 27 months, surpassing the long-term average. The improvement in sentiment covered both industry and services, with the rise in optimism partly due to the "jump" in the index in Germany.

S&P Global noted that May data showed a slowdown in cost inflation and resulting prices in the eurozone. In both cases, the pace of growth weakened compared to April, although it remained above the pre-pandemic average. In services, production cost inflation was the lowest in three years, while in industry costs slightly decreased for the fifteenth consecutive month.

On Thursday morning, we also learned about the readings for Germany, which turned out to be quite optimistic. According to Cyrus de la Rubia, the chief economist of Hamburg Commercial Bank quoted in the report, the May PMI readings for Germany "provide grounds for optimism" and may signal a "turning point" in the industry. The economist expects industrial production growth to return within 2-3 months. He forecasts that in the second quarter, German GDP may grow by 0.3% quarterly.