Eurozone May final services PMI 53.2 vs 53.3 prelim

• Prior 53.3
• Composite PMI 52.2 vs 52.3 prelim
• Prior 51.7

The composite reading is a 12-month high, so it reaffirms that business activity in the euro area is holding up well as a whole. Stronger demand conditions were the key driver underpinning that sentiment. Besides that, business confidence also rose to a 27-month high and price pressures are also seen cooling on the month. That being said, inflation rates continue to remain above their pre-pandemic average. HCOB notes that:

“The spectre of recession is off the table. This is thanks to the service sector, where the upswing has recently broadened. In
Germany, we can now talk of an upward trend, Italy’s business activity remains solid, and Spain has improved from an
already strong position. Only France has experienced a setback, slipping into slightly negative territory. Overall, the service
sector is likely to ensure that the Eurozone will show positive growth again in the second quarter. This is evident from the
Composite PMI and our GDP Nowcast, which takes the PMI into account.

“New business in the service sector is gaining momentum. The corresponding index has been rising since last November,
and order intakes have been increasing for three months. This is complemented by steady employment growth and future
expectations, which have brightened considerably.
“France appears to be an outlier among the four leading Eurozone economies with its weak economic performance.
However, new business is growing slightly faster than in the previous month, bringing France more in line with the other
economies. We are confident that the Eurozone’s second-largest economy will not curb the region’s overall growth during
the coming months.

“The European Central Bank (ECB) is getting a tailwind from the PMI. The PMI price components for the service sector
indicate a slight easing of inflationary pressures, making an ECB rate cut on June 6 more likely. Reduced inflation pressures
are evident in both costs and selling prices. This development is expected to be explicitly mentioned in the press conference
by ECB President Christine Lagarde, countering the unexpectedly sharp wage increases reported for the first quarter.
However, the PMI price indices do not yet give the all-clear, as they are unusually high in the context of the rather weak
economic situation.”

This article was written by Justin Low at www.forexlive.com.