The eurozone remained on course to record its best calendar quarter of economic growth for three years, according to PMI data, as recoveries at both manufacturers and service providers continued in May. The final Markit Eurozone PMI® Composite Output Index posted 53.5, down only slightly from April’s near-three year high of 54.0, to signal growth for the eleventh month running.
Manufacturing continued to lead the upturn in output during May, despite seeing production and new orders expand at the slowest rates in six months. Service sector activity and new business both rose at the quickest rates since June 2011.
The gap between the performances of the two largest economies remained wide in May. Germany continued to report strong output growth, with manufacturers and service providers both benefitting from rising new order inflows. In contrast, output in France fell back into contraction, reflecting the ongoing weakness of the French domestic market.
Elsewhere among the big-four economies, output rose further in both Italy and Spain. Rates of growth ticked higher in Italy and stayed close to April’s seven-year record in Spain.
The improving performance of the eurozone economy continued to support job creation in May. Employment rose for the second month running and, although only modest at manufacturers and service providers alike, the combined increase in payroll numbers was the sharpest since September 2011. Germany and Spain reported further jobs growth, while Italy saw a slight increase for the first time in three years. France reported further cuts.
The subdued nature of job creation mainly reflected the fact that, although rising, demand remained weak by the historical standards of the survey. This led a number of firms to support sales efforts by offering selling price discounts. In contrast, input prices rose for the twelfth month running, as solid inflation at service providers more than offset a slight reduction in manufacturers’ costs.
Output prices fell in France, Italy and Spain, while Germany was the only nation to report an increase. The rate of decline in France was especially marked and the steepest since July last year.
Services:
The eurozone service sector continued to recover at a solid pace in May. At 53.2, up slightly from 53.1 in April, the Eurozone Services Business Activity Index rose to a near-three year high, despite easing from the earlier flash estimate of 53.5. Output has now increased for ten months in a row.Among the nations for which May services data are available, Germany registered the steepest rate of business activity growth, with the rate of increase accelerating to the highest since June 2011. Spain also saw a marked expansion of output, with the pace of improvement remaining close to April’s seven-year record. Business activity also rose in Italy, but only moderately.
France remained a drag on the performance of the services sector, seeing business activity fall back into contraction following gains in March and April. New orders at French service providers fell for the second month running, providing further evidence of the ongoing weakness of the French domestic market. In contrast, new business rose in Germany, Italy and Spain, with rates of increase improving in Germany and Italy.
The outlook for the services economy also remained positive in May. Business optimism* ticked higher to one of its best levels during the past three years. Confidence rose in France, Italy and Spain, but eased in Germany.
The service sector recovery supported further job creation in May. Employment rose for the second straight month and, although only modest, the pace of increase was the best since September 2011. Service providers in Germany and Spain reported further additions to payroll numbers, in contrast to ongoing cuts in Italy and France.
Input price inflation accelerated to a four-month high in May, mainly due to increased payroll costs. Faster rates of cost inflation were registered across the four largest eurozone nations. Meanwhile, with the level of demand still weak by the historical standards of the survey, service providers initiated a further cut in average charges. Output prices have now fallen throughout the past two-and-a-half years.
