Market Analysis

In May, business activity in the Eurozone expanded notably, marking its fastest pace in a year. The latest Purchasing Managers' Index (PMI) from S&P Global for the currency union climbed to 52.2, up from April's 51.7, though slightly below the initial estimate of 52.3. This index, a key indicator of economic health, has now shown growth for three consecutive months, reassuringly above the 50 mark that separates expansion from contraction.

According to Hamburg Commercial Bank's chief economist, Cyrus de la Rubia, the risk of recession has diminished, largely due to the resilient performance of the service sector, which has recently broadened its upswing. This sector is expected to drive positive growth for the Eurozone in the second quarter.

The services PMI moderated slightly to 53.2 in May from April's 11-month high of 53.3, just below the preliminary estimate of 53.3. Concurrently, manufacturing activity, as indicated by a sister survey, showed signs of improvement with its index rising to 47.3 in May from 45.7 in April.

Optimism about future prospects strengthened, with the composite future output index reaching 63.1 in May, the highest since February 2022. This positive outlook encouraged services firms to expand their workforce at the fastest rate in 11 months.

Additionally, inflationary pressures eased as output prices rose at their slowest pace in six months, offering some relief to the European Central Bank ahead of its anticipated 25-basis-point interest rate cut.

"While inflationary pressures have moderated in both costs and selling prices," noted de la Rubia, "the PMI price indices suggest caution due to their relatively high levels amidst a somewhat subdued economic environment."

Paraphrasing text from "Reuters" all rights reserved by the original author.