economy recovers in April but pressure rises on prices From Investing.com

Investing.com – From provisional data from S&P’s latest PMI survey, one of the main indicators of countries’ economic health, economic activity in the Eurozone experienced the fastest growth in almost a year in April.

The flash Hcob PMI index of composite production in countries with the euro rose to 51.4 this month from 50.3 in March. The data exceeds the expectations of analysts who expected a composite PMI of 50.8. The data is the synthesis of the higher-than-expected growth of the tertiary sector, whose PMI index reached 52.9 (51.8 the consensus) and the decline in the manufacturing PMI, which instead disappointed analysts by falling to 45.6 from 46.1 in March.

Overall, after nine months of continuous decline lasting until last February, the latest value signals the second consecutive month of increased production in the Eurozone. A figure that signals the region’s progressive exit from the recent contraction, despite the expansion being only modest and with divergent sectoral performances.

Furthermore, the expansion of the composite PMI in April was the strongest since May last year, although it indicated only modest values ​​and significantly lower than the pace observed in April last year.

At the same time, job growth accelerated as confidence remained high compared to the recent average.

Strong growth was again seen especially in nations outside of France and Germany, with the latter returning to growth in April while France moved closer to stabilization.

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Price pressure increases

In the euro area, however, in line with improvements in production and employment, price pressure has also increased, and has often been linked to wage increases. Average purchasing and selling prices both grew at faster rates, indicating particularly high price pressure in the tertiary sector.

“The eurozone started the second quarter with good results,” commented Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “Our current quarterly GDP forecast of 0.3% remains unchanged from that observed in the first quarter. Several factors show that the recovery of the private sector, which dominates the entire economy, is poised to be long-lasting,” he added.

ECB towards cut in June

“The PMI data – concluded de la Rubia – are ready to test the ECB’s willingness to cut interest rates in June. The faster increases in purchase prices, probably caused not only by the rise in oil prices but also and mainly by the higher cost of wages, are under scrutiny. Services companies have at the same time raised their prices at a faster rate than in March, fueling expectations of persistent inflation in the sector. Despite this, we expect the ECB to cut interest rates in June, but we are doubtful, as suggested by the ECB’s Villeroy de Galhau, that this will happen quickly. Instead, we expect a more cautious approach.”

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