By Jonathan Cable
LONDON (Reuters) – Euro zone business activity accelerated last month as the bloc’s dominant services industry shrugged off renewed lockdowns and returned to growth, according to a survey on Wednesday that also showed firms were facing soaring costs for raw materials.
Europe is enduring a third wave of coronavirus infections, forcing some governments to renew lockdown measures to contain its spread, but factories have largely remained open and the services industry has adapted.
So IHS Markit’s final composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, climbed to 53.8 last month from March’s 53.2. That was just ahead of the preliminary 53.7 reading and comfortably above the 50 mark separating growth from contraction.
“The pace of vaccinations has continued to accelerate, and some countries are easing restrictions. So there is a good chance that euro zone GDP posts a small expansion in Q2,” said Jack Allen-Reynolds at Capital Economics.
The bloc’s economy is set to grow 1.5% this quarter, a Reuters poll found last month. [ECILT/EU]
A PMI for the bloc’s service industry rose to 50.5 from 49.6, pipping the flash 50.3 estimate. That followed a manufacturing PMI on Monday that showed factory activity growth surged to a record high in April.
“The updated services PMIs for April confirmed that the worst for the euro zone economy should be over,” said Nicola Nobile at Oxford Economics.
France’s service sector returned to growth last month despite a new national coronavirus lockdown but it stagnated in Germany as restrictions in Europe’s largest economy halted a recovery, earlier surveys showed.
Italy’s services industry contracted for the ninth month running but Spain saw a return to growth for the first time since July as businesses anticipated the easing of COVID-19 restrictions.
But supply chain disruptions caused by the pandemic led to rocketing prices for manufacturers. The composite input prices index jumped to 64.0 from 61.9, its highest in 10 years.
“These pressures seem unlikely to abate any time soon, so core goods inflation seems likely to keep rising. Services prices are increasing far more slowly, but could pick up as economies reopen,” Allen-Reynolds said.
Although the euro zone vaccine programme was initially hit with problems it has started to pick up and optimism amongst services firms improved. The business expectations index climbed to 68.4 from 67.4, its highest in over a decade.
(Reporting by Jonathan Cable; Editing by Catherine Evans)