Eurozone economic activity slipped marginally in May, according to the ‘flash’ estimate of purchasing managers’ index data from Markit Economics, suggesting the region’s slowing recovery will face stiffer headwinds in the second half of the year but will still maintain growth.
The first composite reading of activity around the single currency area for May was pegged at 53.9 compared to 54.0 in April, Markit said Thursday, matching the median forecast of economists polled by MNI. Manufacturing activity was measured at 52.5, a six-month-low according to Markit, while the service sector reading rose by 0.4 points to hit 53.5. A reading of 50 is generally accepted to mark the difference between overall economic expansion or contraction.
“A slight easing in the euro area’s rate of growth was seen in May but doesn’t change the picture of a region that’s enjoying its best spell of growth for three years, especially when an acceleration in growth of new orders suggests that the pace of expansion could pick up again in June. GDP looks set to rise by 0.5% in the second quarter after the lacklustre 0.2% rise in the first three months of the year,” said Markit’s chief economist Chris Williamson.
“Deflationary pressures remain a major issue, however, and the ongoing fall in average prices charged for goods and services adds to the likelihood of the ECB taking action to boost the economy at its June meeting,” Williamson added. “However, policymakers will also be minded of the steady recovery the region appears to be undergoing, suggesting that anyone expecting any aggressive policy initiatives may be disappointed.”
The composite reading of activity in Germany, the region’s biggest and most important economy, was unchanged from April at 56.1, Markit said, even as the service sector gauge improved 1.7 points to a 35-month high of 56.4. Job creation in the German economy was also impressive, based on Markit’s assessment, with private sector employment growth rising to a 29-month high. That was partially offset, however, by the 1.2 point slide in Germany’s manufacturing sector reading, which fell to a six-month-low of 52.9.
Despite the manufacturing disappointment, however, the figures suggest the Germany economy can maintain the pace if its currency area leading recovery following its first quarter GDP gain of 0.8%, reported last week by Eurostat.
“Recovery prospects in Germany’s private sector continued to brighten in May, with the flash PMI signalling further solid increases in activity and new orders. Furthermore, we saw rising workloads feed through to meaningful employment gains, with the latest rate of job creation the highest since late-2011,” said Markit economist Oliver Kolodseike. “While solid growth was reported across both monitored sectors, a closer look at the data suggests that the service sector outperformed the goods producing sector in May. Manufacturing growth eased slightly after a weather related boost at the start of the year. However, the slowing does little to alter the underlying strong trend of a broad-based recovery.”
Overall activity in France, Europe’s third-largest economy, slipped under the 50 mark which typically separates growth from contraction, falling to three-month low of 49.3 from a 50.6 reading in April. The country’s service sector activity index also touched a three-month low of 49.2, Markit said, after touching 50.4 last month, while manufacturing activity was measured at 49.3, a notable decline from the strong 51.2 reading notched in April.
“France’s stuttering economic performance continued in May, with output sliding back into contraction following modest increases in the previous two months,” said Markit senior economist Jack Kennedy. “With GDP having stagnated in Q1, the PMI data so far suggest another disappointing performance in the second quarter. With new orders and employment both falling at sharper rates in the latest month, the malaise looks set to persist, dashing hopes of any convincing recovery taking hold.”
Markit’s assessment broadly mirrors that of France’s official statistics office, Insee, which reported an unexpected fall in May business sentiment earlier Thursday to 99 from a final reading of 100 in the previous month. Insee’s index for company output prospects – the best gauge for near-term production – also declined, falling to seven points to 4 from the April tally.