The most dynamic recovery seen in his countries Eurozone based on the brisk work of the service sector, gives incentives and arguments to its “hawks” ECB pursue a policy of raising interest rates. And the outlook for the respective companies is positive, proving their resilience to the recent pressure from the turmoil in the banking sector. Moreover, Bank of Ireland Governor Gabriel McLough stressed yesterday that “it is too early for the European Central Bank to start planning for a pause in the cycle of rapid interest rate tightening, given the serious price stability problems plaguing Europe’s economy.” Composite Development Purchasing Managers Index (PMI), accelerated to an 11-month high on stronger demand and led to a significant increase in employment, according to business surveys conducted by S&P Global. Price pressure eased again. However, companies in the manufacturing industry saw further declines in goods orders, while service sector outperformance hit its highest level since 2009.

S&P Global’s overall composite PMI rose to 54.4 in April from 53.7 in March, meaning it remained above the dividing line between growth and decline and in line with analysts’ highest expectations. According to Cyrus de la Rubia, chief economist at the Hamburg Commercial Bank, “the data paint a very positive picture of an economy that is still recovering, but growth is uneven as the gap between booming services and weak manufacturing widens.” Companies have been hiring faster to meet dynamic demand since May last year, Reuters said in a report, so the employment index rose to 54.7 units in April this year from 53.3 in March. The Services Index hit 56.6 this month from 55 in March.

Despite rising costs of living in the euro area, demand for services has improved, but the situation is different for manufacturing, as demand fell faster. The industry PMI fell below 50 to 45.5 from 47.3 in March, the lowest reading in three years since the pandemic began. And a more specific production index, which is one of those that make up the synthetic CPI and has been in positive territory for two months, is now down to 48.5 from 50.4 in March. In particular, production at factories in France fell at its sharpest pace in just three years, while businesses cited sluggish demand due in part to strikes across the country. While these riots leave a “visible mark” on manufacturing, “surprisingly, the traces of the protests are not visible in the service sector,” said Norman Liebke, an economist at the Hamburg Commercial Bank. “The positive performance of the French economy is entirely due to the service sector.” The CPI also rose in Germany to 53.9 from 52.6 mainly due to the services sector. However, manufacturing firms were able to raise selling prices again while entry prices fell faster, resulting in higher margins.

Services sector performance reached its highest level since 2009.

Analysts say the Eurozone could narrowly avoid a recession this winter as countries avoid energy shortages due to Russia’s invasion of Ukraine. Economists expect a moderate recovery over the rest of the year, although inflation remains a problem. Although price pressure eased in April, it remained historically high, especially in the service sector, where input costs have risen sharply as wages have risen. This is expected to worry the European Central Bank, which is focusing on such underlying price action to determine how far it will go on borrowing costs. “Neither entry prices nor exit prices show a significant slowdown” in this sector, said Cyrus de la Rubia of the Hamburg Commercial Bank. “This increases the likelihood that the ECB will tighten monetary policy more or for a longer period of time.”

Finally, as Bloomberg Economics economist David Powell points out in a similar vein, “while the impact of higher borrowing costs may take some time to show, the strength of the eurozone economy will allow stock hawks to succeed in driving at least two more rate hikes and possibly one more.” .