The euro zone economy grows in April at its best pace in almost a year but inflationary pressure increases

The HCOB PMI Composite Index of Total Activity of the Euro Zone, the main indicator of the private economy of the euro zone and precursor of GDP, was once again above the 50 points that divide the zone of contraction of growth to the 51.7 points (50.3 in March), indicating its maximum in the last eleven months. The Euro Zone Services Sector Business Activity HCOB PMI Index stood at 53.3 (51.5 in March), the strongest expansion of service sector activity in almost a year as well.

Eurozone economic recovery advanced further at the start of the second quarter, as total activity growth accelerated and the services sector drives growth in April, but price pressures increase, latest HCOB PMI survey says . Euro zone companies hired additional staff, extending the current period of job creation that began at the beginning of the year.

The seasonally adjusted HCOB PMI Composite Index of Total Activity of the Eurozone, a weighted average of the HCOB PMI Index of Manufacturing Sector Production and the HCOB PMI Index of Commercial Activity of the Services Sector, indicated a moderate expansion of total activity that, of all ways, was the most pronounced in almost a year.

"A strong and accelerated increase in business activity in the services sector boosted recovery efforts in the euro zone in April, as manufacturing production continued to decline. The five euro zone countries for which composite data are available PMI recorded an increase in business activity levels at the beginning of the second quarter, although to varying degrees."

As happened in the first quarter of 2024, Spain was the economy with the best result, and its growth accelerated to reach its maximum in a year. Italy recorded the fourth consecutive month of growth, despite the fact that the pace of increase slowed compared to March. The eurozone's two largest economies, Germany and France, saw overall levels of economic activity rise for the first time in ten and eleven months respectively, although it was marginal growth.

Rising sales supported increased business activity in April. New orders received by private sector companies in the euro zone rose for the first time since May 2023, although only marginally, as a sharper fall in product demand partly offset an increase in new orders received by companies. service companies.

The latest survey data also suggests that the sales revival was driven by the domestic market, as new export orders declined for the 26th consecutive month. Eurozone businesses were optimistic that total activity levels will continue to rise over the next twelve months.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, underlines a rather positive situation. "Service companies have increased their activity for the third consecutive month, putting an end to the lack of dynamism observed in the second half of last year. It is encouraging to note that employment has increased at a faster pace, in line with the rebound in new orders and the growth of the order book, which has experienced its greatest expansion in eleven months.

Productivity poses a major challenge for the services sector and the ECB. Since the beginning of 2021, service companies have steadily increased their workforces, even during the weakest phases in 2022 and 2023. This trend suggests that companies, faced with staff turnover, may need to hire multiple individuals to maintain the same level of production, suggesting a reduction in productivity. Meanwhile, the PMI index of operating costs in the services sector, which largely comprises unit labor costs, has continued to rise at a rapid pace over the past twelve months, following a strong rebound in 2022. "The ECB is aware of this trend and is likely to exercise caution in deciding the extent of interest rate cuts.

"The market structure is characterized by healthy competition without being excessively destructive," continues the economist in a comment accompanying the report. "Spain is outperforming Germany, Italy and France, and its respective services PMI remains several points ahead of its peer economies. "Despite the political turmoil, Spain appears to be disproportionately capitalizing on tourism. In fact, according to the IMF, the Spanish government is less focused on austerity measures compared to other major economies in the euro zone, which means less brake on the economy."