Eurozone activity grows at fastest rate in a year as inflation cools

Business activity the eurozone as a whole grew at the fastest rate in a year, while inflation cooled — welcome news for the European Central Bank, which meets tomorrow and is widely expected to cut interest rates by a quarter point.

The latest HCOB PMI data compiled by S&P Global showed the headline business activity index climbed to a one-year high of 52.2 in May from 51.7 in April.

Of the top four economies, France was the outlier in May as a slight contraction in private sector activity contrasted with growth in Germany, Spain and Italy. Spain’s position as the top performer was solidified as economic growth here was sharp, quickening to a 14-month high.

The bloc’s largest economy, Germany, also registered a marked upturn, with output volumes rising at the fastest pace for a year. On the other hand, Italy’s expansion lost momentum, cooling to its weakest since February.

Stronger demand was a key reason behind May’s upturn in business output across the euro area. Total new order intakes rose for a second month in a row and at the fastest rate since April 2023.

There was a further pickup in demand for services, while the downturn in factory orders cooled markedly from the previous month. The survey indicated that improved sales performances were restricted to domestic markets, as new business received from abroad declined, in line with the trend since March 2022.

Prices gauges signalled cooling inflationary pressures across the eurozone half way through the second quarter. However, the increase in input costs remained sharp and well above its pre-pandemic average. It was a similar picture for output prices where the selling price increases eased to a six-month low, but remained considerably steeper than seen on average prior to 2020. Manufacturers continued to see reductions in both pricing measures, whereas services companies registered historically sharp rises.