The euro area’s economic rebound gained further momentum in April thanks to resurgent service-sector activity, while the business outlook remains resilient to recent banking-sector stress.
(Bloomberg) — The euro area’s economic rebound gained further momentum in April thanks to resurgent service-sector activity, while the business outlook remains resilient to recent banking-sector stress.
Growth accelerated to an 11-month high, driven by greater demand and leading to a significant increase in employment, according to business surveys by S&P Global. Price pressures moderated again.
The development was increasingly uneven, however, as manufacturers witnessed a further decline in orders for goods, while the outperformance of services was the biggest since 2009.
The data “show a very friendly overall picture of an economy that continues to recover,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, adding that “the gap between the partly booming services sector on the one hand and the weakening manufacturing sector on the other has widened further.”
The euro area may narrowly avoid a recession this winter as countries avoided energy shortages feared after Russia invaded Ukraine and curbed gas supplies to the bloc. Economists expect a modest rebound during the rest of the year, though inflation still poses a concern.
Cooling Prices
While price pressures cooled in April, they remained elevated by historical standards, especially in the services sector, where input costs rose sharply due to higher wages. That’s set to worry the European Central Bank, which is focusing on such underlying price developments to determine how far to take borrowing costs.
“Neither input prices nor sales prices are showing any significant slowdown” in the sector, de la Rubia said. “This increases the likelihood that the ECB will tighten monetary policy more, or for longer.”
What Bloomberg Economics Says…
“While the impact of higher borrowing costs can take a while to be felt, and choppy waters may still lie ahead, the strength of the economy should allow the hawks on the Governing Council to succeed in pushing for at least two more interest rate increases and possibly a third.”
—David Powell, economist. For full analysis, click here
Manufacturing output was partly dragged lower by some French companies that were impacted by protests and strikes against the pension reform passed by President Emmanuel Macron’s government, S&P Global said.
Businesses were “rather positive” in their outlook, thanks to easing energy concerns, improving supply chains and the hope that inflation has passed its peak.
The PMI gauge for the UK revealed the fastest growth in a year as spending on holidays and entertainment powered a stronger-than-expected pick-up in momentum.
The reading for the US later on Friday is predicted to show expansion. Data earlier revealed activity in Japan slowed slightly while remaining strong. The gauge for Australia showed a return to growth.
–With assistance from Mark Evans and Joel Rinneby.
(Updates with UK reading in 10th paragraph, adds Bloomberg Economics comment.)
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