Eurozone economic growth remained subdued during May, with the rate of expansion achieved so far during the second quarter a touch below that seen in quarter one.
The final Markit Eurozone PMI® Composite Output Index ticked higher to 53.1, up from 53.0 in April and the earlier flash estimate of 52.9. However, the past four months have seen economic growth hold broadly steady at February’s 13-month low.
The upturn was again led by the service sector, which saw a modest growth acceleration. Manufacturing production also continued to rise, albeit at a slightly lesser pace than in April.
National data pointed to a broad-based expansion of output, with growth registered across the ‘bigfour’ economies and Ireland. Rates of increase accelerated in Germany, France and Ireland, but eased in Spain and Italy. Growth rates in France and Italy were lacklustre in comparison to the solid expansions seen elsewhere.
New business growth slipped to a 16-month low in May, suggesting a strong likelihood that output expansion will remain subdued in coming months.
Brighter news came from the labour market, however, with job creation hitting a four-month high. German employment rose at the fastest pace since January, while Ireland also saw quicker jobs growth. Staffing levels also rose in Italy and Spain. France reported a reduction in headcounts for the second time in the past three months. A slight increase at French service providers was more than offset by manufacturers cutting jobs at the steepest pace since August 2014.
May data suggested economic capacity is broadly matching current demand requirements. This was highlighted by the trend in backlogs of work, which showed little change during the latest survey period.
Price gauges continued to move higher in May. Average cost inflation accelerated to a ten-month high, mainly due to a firming of commodity prices (notably oil) and increased staff costs at service providers. Although selling prices continued to fall, the pace of deflation was only mild and the weakest during the year-to-date.
Companies in both the manufacturing and service sectors reported that lower output charges were in response to ongoing price competition and softer market conditions. Only Germany and Ireland saw selling prices rise. Spain registered no change, while charges fell further in France and Italy.
The final Eurozone Services Business Activity Index posted 53.3 in May, a three-month high and above the earlier flash estimate of 53.1. However, the average headline index reading so far in the second quarter is a touch below that registered in the opening quarter.
Germany, France, Spain and Ireland all reported accelerated growth of business activity in May. Italy slipped into contraction territory, registering a slight decrease in activity for the first time since December 2014.
With the rate of growth in incoming new orders at eurozone service providers easing to a 16-month low and business confidence sliding to its lowest since last November, the data suggest that a near-term growth revival is unlikely.
The ‘big-three’ nations all saw inflows of new business rise at slower rates, in contrast to the mild accelerations in Spain and Ireland.
Employment in the euro area service sector increased for the nineteenth successive month in May. Furthermore, the pace of jobs growth edged up to a three-month high. Staffing levels were raised in each of the nations covered by the survey.
Ireland and Germany registered the steepest increases, with rates of job creation hitting three- and five-month highs respectively. Spain also saw a slightly faster expansion of staffing, while France and Italy saw slower rates of jobs growth.
Input price inflation accelerated to a near three-and-a-half year high. Companies attributed higher costs to a firming of certain commodity prices, increased transportation and energy costs and rising staff wages and salaries. Meanwhile, output charges decreased only marginally. Higher selling prices in Germany, Spain and Ireland were offset by further discounting in France and Italy.
Chris Williamson, Chief Economist at Markit said:
The survey data are signalling a GDP rise of 0.3% in the second quarter, suggesting the growth spurt seen at the start of the year will prove frustratingly short-lived.
“June looks likely to prove equally disappointing, as inflows of new business slowed in May to the weakest for almost one-and-a-half years. (…)