The euro zone’s recovery from the pandemic-induced economic downturn was much stronger than expected in April as the bloc’s dominant service industry shrugged off renewed lockdowns and made a surprise return to growth, a survey showed.
With the continent facing a fresh wave of coronavirus infections governments have reimposed strict lockdown measures to contain the spread, forcing some businesses to close and encouraging citizens to stay home.
That meant the economy was expected to recover at a much weaker rate this quarter than had been expected only a month previously, according to a Reuters poll last week.
But IHS Markit’s flash Composite Purchasing Managers’ Index, seen as a good guide to economic health, rose to a nine month high of 53.7 from March’s 53.2, confounding expectations in a Reuters poll for a dip to 52.8. Anything above 50 indicates growth.
“In a month during which virus containment measures were tightened in the face of further waves of infections, the euro zone economy showed encouraging strength,” said Chris Williamson, chief business economist at IHS Markit.
“Although the service sector continued to be hard hit by lockdown measures, it has returned to growth as companies adjust to life with the virus and prepare for better times ahead.”
A PMI for the service industry rose to 50.3 from last month’s 49.6, beating the median forecast in the Reuters poll for a decline to 49.1.
Meanwhile, factories in the currency union had their most active month since the survey began in mid-1997. The manufacturing PMI rose to 63.3 from March’s 62.5, better than the predicted 62.0.
An index measuring output, which feeds into the composite PMI, nudged up to 63.4 from 63.3. That was also a survey high.
“Pent-up spending, restocking, investment in new machinery and growing optimism about the outlook have all helped fuel a further record surge in both output and new orders,” Williamson said.
But supply-side disruptions left factories facing soaring costs for raw materials. The input prices index climbed to a near-record high of 81.5 from 79.7 and manufacturers were only able to pass some of that increase on to customers.
With some businesses staying open – or preparing to reopen – services firms increased headcount at the fastest pace since before Europe faced the full brunt of the pandemic. The employment PMI rose to 52.2 from 51.1.
Hopes slow vaccination programs accelerate and allow a return to some form of normality sent optimism about the coming year higher.
The composite future output index climbed to 68.8 from 67.9, the highest since IHS Markit started collating the data in July 2012.