Where’s the recovery in Europe? An answer comes from the preliminary PMI data, with one certainty: there is still at least one problem for growth in the old continent.
From reading the (preliminary) PMIs of May in Europe, it emerged that the economic recovery has at least one problem still to be solved in the old continent.
Eurozone manufacturing activity, in fact, fell this month at the fastest pace since the pandemic forced factories to close three years ago, threatening to weaken the momentum of a services-led economy.
Overall, the unveiled PMI numbers signal that an overall expansion is underway, even if they leave a question mark over its pace, potentially casting doubt on the eurozone’s ability to achieve 0.4% growth per quarter shown in the European Commission’s forecast published last week.
Therefore, even without alarms, the recovery of Europe still has obstacles to overcome: this is all the data on the growth that falters.
The recovery in Europe in numbers: there is still a problem
Eurozone business growth remained resilient, but slowed slightly and more than expected this month, as the bloc’s dominant services industry lost some of its luster and the downturn in manufacturing sector deepened.
The flash Composite Purchasing Managers’ Index (PMI), compiled by S&P Global and seen as a good indicator of overall economic health, fell to 53.3 in May from 54.1 in April.
While still comfortably above the 50 mark that separates growth from contraction, it was below a Reuters estimate at 53.5.
“Eurozone GDP is likely to have grown in the second quarter thanks to the health of the services sector. However, the manufacturing sector is a powerful drag on the momentum of the economy as a whole”, said Cyrus de la Rubia, chief economist at the Hamburg Commercial Bank.
With prices still soaring and indebted households having to pay higher borrowing costs, overall demand growth declined sharply. The new business index fell to 50.4 from 52.5.
In addition, demand for manufactured goods saw a decline and the PMI of factories fell to 44.6 from 45.8, the lowest since May 2020, when the coronavirus pandemic was bringing the world to a halt. The Reuters poll had expected a reading of 46.0.
An index measuring output, which feeds the composite PMI, fell to a six-month low of 46.3 from 48.5.
These numbers add to growing concerns over Germany’s manufacturing problems, Europe’s largest economy, which is a growing drag on the wider region. The Union of German Chambers of Commerce and Industry has indicated zero growth this year, as companies see no evidence of a really solid and lasting recovery.
The manufacturing industry, therefore, is struggling and this is an alarm for the old continent where the ECB’s rate hike policy is by no means finished. The only good news for the sector is the supply chains largely recovered from the Covid chaos and lower energy prices.
Not surprisingly, input prices for factories fell at the fastest pace in more than seven years, allowing factories to cut prices for the first time since September 2020. The producer price index fell to 49.0 from 51.6.
The (weaker) momentum of services and the inflation trap
The PMI for the tertiary sector fell from April’s one-year high of 56.2 to 55.9, however beating the Reuters poll’s forecast for a steeper decline to 55.6.
Despite slowing new business growth, service firms added headcount at a rapid pace: the employment ratio was at 55.0, albeit below April’s 11-month high of 55,6.
However, the prices charged by these firms have risen faster and the ECB) is expected to add another 25 basis points to deposit and interest rates next month and in July.
“The ECB will have a headache with the PMI price data. This is because sales prices in the services sector actually increased more than the previous month. It is precisely the price trend in this sector that the ECB is watching with a wary eye”, added de la Rubia.
Original article published on Money.it Italy 2023-05-23 12:01:05. Original title: La ripresa economica in Europa ha un problema
