Eurozone growth accelerates in April, but price pressures may test the ECB

Prices are continuing to rise but businesses are employing once again
Prices are continuing to rise but businesses are employing once again Copyright Luca Bruno/Copyright 2023 The AP. All rights reserved
Copyright Luca Bruno/Copyright 2023 The AP. All rights reserved
By Piero Cingari
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European private sector economic activity rebounds strongly in April, led by robust demand in services, although manufacturing continued to contract. However, resuming inflationary pressures cast uncertainty on the speed of ECB rate cuts.


European private sector economic activity showed a strong rebound in April driven by strong demand in services. However, some inflationary pressures do not appear entirely vanquished, leaving uncertainty regarding the speed of returning to European Central Bank (ECB)'s 2% target.

The flash Purchasing Managers' Index (PMI) surveys released by S&P Global on Tuesday continued to indicate robust growth in the services sector across major European economies, alongside persistent challenges in manufacturing activity.

Featured below is a visual depiction of the latest trends in private sector activity surveys for the Eurozone, Germany, and France.

Growth hits 11-month highs, but price pressures resume

In April, the Eurozone Composite PMI Output Index rose to 51.4 from 50.3, reaching its highest level in 11 months.

The Services PMI increased to 52.9 from 51.5, surpassing the anticipated 51.8, while the Manufacturing PMI decreased from 46.1 to 45.6, falling short of the expected 46.5.

"The eurozone got off to a good start in the second quarter," remarked Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

He highlighted a positive trend in new business over the past two months, leading to a more proactive stance on hiring. Additionally, he pointed out that the rise in output prices not only reflected the faster increase in input costs but also indicated the confidence of service providers in their pricing strategies.

The economic recovery this month is observable in the eurozone's two leading economies, Germany and France.

However, "the PMI figures are poised to test the ECB's willingness to cut interest rates in June", de la Rubia warned.

According to the economist, accelerated rises in input costs, possibly due to both increased oil prices and notably higher wages, are raising concerns. Meanwhile, service sector businesses have speeded up their price hikes, indicating a likelihood of sustained services inflation.

Despite these challenges, he still predicts the ECB will lower rates in June, although he doubts they'll do so as quickly as some officials had recently suggested. 

German economy shows growth in April

In April, the German private sector saw a return to growth, with the Composite PMI output index climbing to 50.5 from March's 47.7, marking its highest level in 10 months.

The services sector experienced a notable surge to 53.3, surpassing economist expectations of 50.6 and reaching its highest level since June 2023.

However, manufacturing production continued to contract, albeit at a slower pace, with a marginal increase from 41.9 to 42.2, falling short of the expected 42.8. On the pricing front, the rate of input cost inflation rose from March's three-month low, bringing it broadly in line with its historical series average.

"Is the recession over? The answer is not straightforward. For starters, it appears that the recession was predominantly concentrated within the manufacturing sector, while the broader (German) economy may have narrowly skirted such a downturn," said Dr Cyrus de la Rubia.

He further commented that the service sector could act as a catalyst for the broader economy, as it accounts for roughly two-thirds of the gross domestic product, likely pointing towards a potentially more stable and lasting recovery.

French economy stabilises in April

France's Composite PMI rose from 48.3 to 49.9, reaching its highest level in almost a year and signalling a stabilisation in broader economic conditions.

Nevertheless, while services activity rebounded, marking its first growth since May 2023, with the PMI rising to 50.5 and surpassing expectations set at 48.9, the manufacturing sector saw a deepening contraction. The PMI for manufacturing declined to 44.9, significantly below the anticipated 48.9.


French factory orders experienced their sharpest decline since January, driven by reports of weakening demand from clients in international markets.

"The services sector is the workhorse of the economy," remarked Norman Liebke, Economist at Hamburg Commercial Bank, highlighting its pivotal role.

However, price pressures reaccelerated due to increased wages, energy costs, and oil prices. Operating expenses for manufacturers surged at their fastest rate since February 2023.

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