We are conducting routine maintenance on portfolio manager. We'll be back up as soon as possible. Thanks for your patience.

Eurozone PMIs at 12-Month High

And business confidence is the highest in more than two years as the euro area economy continues to expand

Sara Silano 23 May, 2024 | 11:38AM
Facebook Twitter LinkedIn

abstract technology image

Eurozone “flash” estimates for purchasing managers’ indexes (PMI) have been released today, May 23. They are initial estimates for the current month that are subject to revision.

The eurozone economy gathered pace in May, according to provisional PMI survey data provided by S&P Global. Wage data for the euro area was also released by the European Central Bank, which is still expected to cut interest rates when it next meets on June 6.

The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index rose from 51.7 in April to 52.3 in May, higher than the FactSet consensus of 52, and above the line that marks expansion from contraction (50).

“Faster increases in business activity, new orders and employment were all recorded midway through the second quarter, while business confidence hit a 27-month high,” said S&P in a note.

The main contributor in the eurozone came from the service sector, as the HCOB Flash Eurozone Services PMI Business Activity Index was unchanged from April at 53.3, slightly below consensus (53.5).

The manufacturing PMI Index surprised on the upside, coming in at 47.4 against an expectation of 46.1, reaching a 15-month high. However, it is still below the line that marks expansion from contraction. Manufacturing production continued to fall, but the rate of contraction was marginal.

Will the ECB Cut Rates on June 6?

May’s flash eurozone PMI indexes also contained some pointers for the European Central Bank (ECB) as it prepares to meet next month. The rate of inflation of both input costs and output prices softened from April, although remaining above pre-pandemic averages in each case.

Once again, the service sector was the biggest source of inflationary pressures, but the rate of rises eased to a three-year low.

“This time, there is also some good news for the European Central Bank (ECB) as the rates of inflation for input and output prices in the services sector has softened compared to the month before,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“This will be supportive for the apparent stance of the ECB to cut rates at the meeting on June 6. However, the better inflation outlook will be most probably not be enough for the central bank to announce that further rate cuts will follow.”

The ECB has all but promised a rate cut on June 6 and recently ECB’s president, Christine Lagarde, said she is “really confident” that eurozone inflation is under control. Other ECB policymakers have sent strong signals for several months. On May 22, Finnish bank governor and member of the ECB’s governing council Olli Rehn, told AFP that the ECB can start cuts before the Federal Reserve.

Eurozone Wages Increase are a Warning for the ECB

However, an acceleration of wages could weigh on future ECB decisions. Germany wage’s data, published on May 22 by Bundesbank, showed an increase at the fastest pace for almost a decade. Today’s figures for the overall eurozone signalled that wage growth picked up in the first quarter. According to the ECB, the negotiated wages in the euro area increased 4.7% from a year ago. This could put a setback on the pace of rate cuts, as wage pressures are a key data for ECB officials.

“The direction of nominal wage growth will be crucial in understanding not so much when the first cut will occur (which we now know with some certainty), but what the path of cuts will look like in the future,” said George Curtis, portfolio manager at TwentyFour Asset management.

Eurozone Inflation Falls

Read more

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Sara Silano

Sara Silano  is Editorial Manager for Morningstar Italy

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures