According to the flash report from HCOB, business activity in the private sector of the eurozone improved in May, exceeding economists' forecasts and reaching the highest level since May 2023. Business confidence hit a 27-month high, while rates of inflation of both input costs and output prices softened from April.
The Eurozone Composite PMI Output Index rose in May to 52.3 points from 51.7 points in April. An index value above 50 points indicates an expansion of activity in the sector. Economists had expected the index to rise to 52.0 points. The services PMI remained at 53.3 points, while the manufacturing PMI rose to 47.4 points (15-month high) from 45.7 points. Economists had expected the services PMI to rise to 53.5 points and the manufacturing PMI to reach 46.2 points.
HCOB said that in new orders growth increased in May, helped by strong growth in the services sector. Manufacturing new business continued to fall, although at the weakest pace in two years. Meanwhile, new export orders declined for the 27th consecutive month, but the rate of decline was only modest. Employment continued to rise in May as companies responded to the increase in new orders by increasing the number of workers. The pace of job creation accelerated to the highest levels since June 2023. Headcount growth was concentrated in the service sector, while industrial employment continued to fall. The overall expansion of capacity enabled companies to keep on top of workloads, with backlogs of work depleted for the fourteenth consecutive month. The pace of reduction was slightly stronger than that seen in April. Meanwhile, stocks of both purchases and finished goods were reduced, and to greater extents than was the case in April. The data also showed that rates of inflation of both input costs and output prices eased in May, but in each case remained above the pre-pandemic average. Meanwhile, eurozone companies were more optimistic about the future development of business activity in May, and their confidence was the highest since February 2022. Stronger optimism was observed in both the manufacturing and services sectors.