(Adds comments, detail)
By Jonathan Cable and Indradip Ghosh
April 21 (Reuters) - The euro zone economic recovery has
unexpectedly gathered pace this month as the bloc's dominant
services industry saw already-buoyant demand rise, more than
offsetting a deepening downturn in manufacturing, surveys
showed.
The strong services performance could mean that wage
pressures continue in the region, complicating the European
Central Bank's efforts to tame inflation, some economists noted.
HCOB's flash Composite Purchasing Managers' Index (PMI),
compiled by S&P Global and seen as a good gauge of overall
economic health, jumped to an 11-month high of 54.4 in April
from March's 53.7, data showed on Friday.
That was well above the 50 mark separating growth from
contraction and matched the highest forecast in a Reuters poll
which had predicted no change from March.
"The PMI sheds a positive light on the economic performance
in the eurozone, as a pickup in service sector activity is
boosting growth," said Bert Colijn, senior euro zone economist
at ING, noting manufacturing weakness remained a concern.
Danske Bank's Piet Haines Christiansen said ECB
policy-makers would likely focus on the rise in services PMI
"notably due to the close link to the wage dynamics" in a sector
where wages represent some of the biggest costs.
The ECB is expected to raise rates for a seventh straight
meeting on May 4, with policymakers converging on a
25-basis-point hike even if a larger move is not yet off the
table, sources with direct knowledge of the discussions have
told Reuters.
To meet rising demand firms increased headcount at the
fastest pace since last May. The employment index bounced to
54.7 in April from 53.3.
A PMI covering the services industry soared to 56.6 this
month from 55.0, confounding expectations in the Reuters poll
for a decline to 54.5.
Despite high living costs in the region, demand for services
improved as consumers continued to spend. The new business index
rose to a one-year high of 55.8 from 54.2.
But it was a different story for the bloc's manufacturers
who saw demand decline faster. The sector's headline PMI fell to
45.5 from 47.3, its lowest since the coronavirus pandemic was
cementing its grip on the world three years ago.
An index measuring output, which feeds into the composite
PMI and had spent two months in positive territory, fell to 48.5
from 50.4.
National PMI measures showed that activity in Germany grew
for a third straight month in April as a services sector revival
offset a contraction in manufacturing activity.
In France, business activity expanded at a
faster-than-expected pace on continued strong growth in the
dominant services sector even as protests against plans to
increase the retirement age impacted the already battered
manufacturing sector.
Further improvements to supply chains in the euro area meant
the cost of raw materials fell at the sharpest pace in almost
three years, so factories only marginally increased their
charges. The output prices index dropped to 51.8 from 53.4, its
lowest since late-2020.
That will likely be welcomed by ECB policymakers struggling
to get inflation anywhere near their 2% target.
"The further drop in both the manufacturing and services
output price indices was encouraging and suggests that core
inflation should start to trend down eventually," said Franziska
Palmas, senior Europe economist.
"ECB officials have suggested that while a further rate hike
in May is likely, they have yet to decide on its size. The
continued strength of the PMIs is clearly a reason for them to
opt for a larger hike."
(Reporting by Jonathan Cable and Indradip Ghosh; Editing by
Hugh Lawson, Mark John and Christina Fincher)
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