2022.05.2412:14:00UTC+00Eurozone Private Sector Expands Despite Ukraine War, High Cost Of Living

Euro area private sector expanded at a stronger pace in May, led by the services sector, despite the war in Ukraine, supply constraints and rising cost of living, flash survey results from S&P Global showed on Tuesday.

The composite output index dropped to 54.9 in May from 55.8 in April. The reading was forecast to fall moderately to 55.3. However, the current level above 50.0 indicates strong growth in the private sector.

Growth was driven by the service sector, which posted its second-strongest increase in the past eight months.

Many consumer-facing service sector businesses reported robust demand due to the reopening of the economy after the restrictions related to the spread of the Omicron variant of the coronavirus were relaxed.

The services Purchasing Managers' Index slid to 56.3 from 57.7 a month ago. Economists had forecast a score of 57.5.

At the same time, the survey showed that factory output continued to be constrained by widespread supply shortages, with the Ukraine war and China's Covid lockdowns having exacerbated existing pandemic-related supply chain pressures.

At 54.4, the manufacturing PMI reached an 18-month low in May, down from 55.5 in April and economists' forecast of 54.9.

Thanks to buoyant demand for services, particularly from households, the PMI data are consistent with the economy growing at a solid quarterly rate of 0.6 percent so far in the second quarter, Chris Williamson, chief business economist at S&P Global Market Intelligence, said.

Although the small fall in overall composite PMI suggests that activity is holding up better, the services rebound is likely to run out of steam amid high inflation and the drop in new orders bodes ill for industry, Jessica Hinds, an economist at Capital Economics, said.

So GDP growth is still likely to be weak for much of this year, Hinds added.

Within the currency bloc, the survey revealed that France recorded the strongest expansion, its rate of growth easing slightly on April but remaining the second-strongest since June of last year.

The flash composite output index decreased moderately to 57.1 in May from April's 51-month high of 57.6. The reading was above the expected 57.0.

The services PMI fell to 58.4 from 58.9 and also remained below the forecast of 58.6. Likewise, the factory PMI dipped to 54.5 from 55.7 in April. The flash score was 55.0.

Meanwhile, growth in Germany gained a little momentum compared to April and ran close to the average recorded so far this year.

Germany's composite output index came in at 54.6 in May, marking a slight improvement from April's 54.3 but below the expected score of 54.0.The sector continued to grow for the fifth straight month amid a sustained strong rebound in service sector activity.

The services PMI registered 56.3, down from 57.6 in the previous month. The expected level was 57.2. Meanwhile, the factory PMI rose marginally to 54.7 from 54.6.