Growth accelerated in April, according to PMI data released this morning. The Composite PMI for activity rose to 54, its highest level in almost 3 years. Despite the improvement in activity, price pressures remain subdued. Large spare capacities in the economy will continue to exert downward pressures on prices and wages.
Growth accelerated in April according to the flash reading of the PMI surveys released this morning. The Composite PMI for activity, which tracks quarter-on-quarter GDP growth relatively well, rose to 54, reaching its highest level in almost 3 years. This level is consistent with GDP growth in the range of 0.4%-0.5% q/q.
The upturn continues to be led by Germany. The German manufacturing sector is benefiting from the rise in domestic and foreign orders, with panelists mentioning Asia, Europe and the US as sources of growth, while the strengthening of domestic demand is supporting activity in the services sector. Not surprisingly, employment is increasing at a solid pace, suggesting that the economy is likely to continue expanding going forwards. At 56.3, the German Composite PMI for activity came back to levels not seen over the past 3 years. By contrast, activity is increasing at a very moderate pace in France. No data are available at this point of the estimate for the rest of the zone. However, Markit, the compiler of the survey, pointed out that activity is recovering at a faster pace in the rest of the zone.
Better economic prospects and rising orders are making businesses more confident and they are starting to hire again. The composite employment index, which over the previous three months had just shown a stabilization, was close to 51 in April, reaching its highest level since autumn 2011. The rising employment is encouraging, as it suggests that the recovery is becoming more selfsustained.
The negative part of the survey was still related to prices. While input prices increased in April, although at a slower pace, output prices kept on falling, signaling that the disinflationary trend continues, despite the recovery in activity. Large levels of spare capacities in the economy are weighing on price and wage dynamics and they continue to exert downward pressures going forwards.
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