Eurozone economy rebounds as services drive revival in May

On Thursday, we learned about the PMI data for the entire eurozone. According to the latest S&P Global report, the eurozone economy accelerated in May, and key economic indicators reached multi-month highs. The composite PMI index was 52.3 points, compared to 51.7 points in April.

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

According to S&P Global data, the revival pillar remains the services sector, where the business activity index maintained April's growth pace (53.3 points). New services orders grew at the fastest pace in 13 months.

Meanwhile, as we read, production was declining in the industry, although to the most minor extent in 14 months. New orders contracted to the most minor extent 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 points to 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 most robust 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 services, 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 and the rise in optimism was partly due to the "jump" in the German index.

As noted by S&P Global, 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. They 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 are "more reason for optimism" and may signal a "turnaround" in the industry. The economist expects industrial production growth to return within 2-3 months. He forecasts that German GDP may grow by 0.3% quarterly in the second quarter.