Economic growth in the eurozone, already at a six-year high, held steady in May, while job creation rose to one of its strongest recorded levels, according to the latest IHS Markit Flash Eurozone Purchasing Managers’ Index (PMI). Business optimism about the coming year is at one of the highest levels in the five-year history of the survey’s future output question.
“The consensus forecast of 0.4% second quarter growth could well prove overly pessimistic if the PMI holds its elevated level in June,” said IHS Markit Chief Business Economist Chris Williamson. “Capacity is being strained by the strength of demand, with backlogs of work showing one of the largest increases in the past six years.”
With output growth accelerating to the fastest in over six years, manufacturing has led the upturn, with service sector business activity also remaining strong. A boost for manufacturing came from exports rising at the steepest rate since April 2011. To expand operating capacity, hiring has been heavy, at a pace rarely before seen, IHS Markit said. Manufacturing added jobs at the steepest rate in the survey’s 20-year history. The overall rise in employment was the second-largest in nearly 10 years.
Strong price pressures have dogged the upturn, with average selling prices for goods and services rising at the second-fastest rate since July 2011.
“Although selling prices have continued to march higher, there are signs of input cost pressures beginning to ease,” Williamson said. “This suggests underlying inflationary forces could moderate as we move into the second half of the year, playing into the ECB’s [European Central Bank] hands. Although the pace of economic growth signaled by the PMI is historically consistent with the ECB taking a hawkish stance, the dip in cost pressures will add weight to arguments that there’s no rush to taper policy.”
– Adam Fusco, associate editor