Euro zone business growth got boost from reopened services in April

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© Reuters. FILE PHOTO: People enjoy an evening drink at Place de la Contrescarpe in Paris as cafes, bars and restaurants reopen after closing down for months amid the coronavirus disease (COVID-19) outbreak in France, May 19, 2021. REUTERS/Sarah Meyssonnier

LONDON (Reuters) – Business activity in the euro zone accelerated last month as the bloc’s dominant services industry took advantage of a further loosening of COVID-19 restrictions, offsetting a near-stall in manufacturing output growth, a survey showed on Wednesday.

S&P Global (NYSE:)’s final composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, rose to 55.8 in April from March’s 54.9, matching a preliminary estimate. Anything above 50 indicates growth.

“The euro zone economy has shown surprising resilience in the face of the Ukraine-Russia war, thanks to a renewed burst of service sector activity as virus containment measures were relaxed further during April,” said Chris Williamson, chief business economist at S&P Global.

A PMI for the services industry jumped to 57.7 last month from 55.6, its highest reading since August. That comes after a factory PMI for the region fell to a 15-month low of 55.5 in April, a sister survey showed on Monday.

With restrictions to contain the coronavirus easing and life returning to some form of normality, optimism improved and the services business expectations sub-index rose to 62.3 from 60.8.

But firms are still facing soaring costs and passed some of that burden onto consumers, so that the composite output price index leapt to 68.5 from 65.7, by far the highest reading since S&P Global began collecting the data in late 2002.

That is likely to raise bets the European Central Bank will tighten policy as inflation in the currency union was 7.5% last month, preliminary official date showed last week, almost four times the ECB’s 2% target.

“The combination of the stronger growth profile for the second quarter and a persistent acceleration of inflation signalled by the surveys will add to speculation that the ECB could start raising interest rates as soon as its July meeting,” Williamson said.

The ECB is expected to raise its deposit rate before year-end, a Reuters poll showed last month.

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