Eurozone business activity accelerates to highest level in a year, according to PMI data

The Euro zone business activity expanded at its quickest rate in a year in May as growth in the services industry outpaced contraction in manufacturing, according to a private survey. The composite Purchasing Managers’ Index (PMI) for the currency union, compiled by S&P Global, rose to 52.2 in May from April’s 51.7, its highest since May 2023. Although slightly below a preliminary estimate, it remained above the 50 mark separating growth from contraction for the third straight month.

Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, stated that “The spectre of recession is off the table thanks to the service sector, where the upswing has broadened recently.” He also noted that the euro zone is likely to show positive growth again in the second quarter, thanks to the service sector.

The services PMI eased slightly to 53.2 last month from an 11-month high, while a sister survey showed that manufacturing activity might be turning a corner with an index measuring manufacturing activity rising in May. Overall demand improvement boosted optimism about the year ahead, leading to an increase in headcount at services firms.

Overall price pressures eased with output prices increasing at the slowest pace in six months, which could provide reassurance to the European Central Bank. However, de la Rubia noted that the PMI price indices still remain high in the context of a weak economic situation, indicating that caution is still necessary.