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Flash PMI signals lacklustre start to Q2 in eurozone

Christian Fernsby |
The pace of eurozone economic growth slowed for a second successive month in April, according to flash PMI survey data, indicating that the economy remains in its worst growth spell since 2014.

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Manufacturing reported a further contraction and service sector growth cooled.

A solid service sector performance in Germany helped sustain the expansion, offsetting a sharp manufacturing downturn.

France meanwhile stagnated and the rest of the region saw the worst growth since late-2013.

The IHS Markit Eurozone Composite PMI® fell from 51.6 in March to 51.3 in April, according to the preliminary ‘flash’ estimate.

The latest reading was the third-lowest since November 2014, only marginally above the recent lows seen in December and January.

The flash PMI is typically based on around 85% of the final number of replies received each month.

New order growth picked up only marginally, remaining close to stagnant.

New export orders fell sharply, down for a seventh straight month to continue the worst period of export performance since comparable data covering both goods and services were first available in 2014.

Backlogs of work dropped for the fourth time in the past five months and have not shown any growth since last November.

The reduction in backlogs was only fractionally smaller than in March, which had seen the steepest decline since December 2014.

Employment growth picked up slightly but remained among the lowest since 2016.

Firms often remained reluctant to take on additional staff in the face of weak demand and an uncertain outlook.

Business expectations about the year ahead continued to run at one of the gloomiest levels since late-2014, dipping for a second successive month to the lowest since January.

Reduced optimism was often linked to the recent slowing in demand and lower sales enquiries, as well as downgraded forecasts for economic growth.

Specific concerns focused on rising political uncertainty, including Brexit, trade wars and protectionism.

The weakness of the auto sector was also again often cited as an area of concern.

Although input cost inflation across the euro area accelerated for the first time in seven months from March’s two-and-a-half year low, in part driven by higher oil prices, average prices charged for goods and services rose as at the slowest rate for 20 months as weak demand stifled pricing power.

Manufacturing output fell for a third month in a row, with new orders down for a seventh successive month.

Although rates of contraction eased in both cases, the declines were the steepest for six years with the exception of those seen in March.

Input buying decreased and employment growth remained close to stagnation, down markedly on a year ago.

The headline manufacturing PMI consequently remained below 50 for a third straight month, up from March but still at its second-lowest since April 2013.

A drop in future optimism in the factory sector to the lowest since 2012 added to the downbeat assessment.

Service sector growth meanwhile cooled from March’s four-month high.

With the exception of the recent soft patch seen in December and January, the expansion was the weakest since September 2016.

New business growth slowed, backlogs of work declined marginally for a second consecutive month and future expectations deteriorated slightly.

Service sector jobs growth nonetheless gained a little momentum, edging up to a five-month high.

By country, France was again a drag on overall eurozone performance, with business activity showing no change and new business inflows dropping for a fifth straight month.

A mild expansion of service sector activity was offset by a moderate deterioration in manufacturing.

The overall resulting stagnation in April was an improvement on the decline seen in March but still one of the worst performances since mid-2016.

In Germany, business activity grew at an increased pace compared to March but the expansion was merely in line with the modest overall rate of growth seen in the first quarter.

New orders fell for a fourth consecutive month and backlogs of work showed the largest fall since June 2013.

The expansion was driven by the service sector, where growth inched up to a seven-month high.

Manufacturing output fell sharply for a third month running due to a further steep drop in new orders, albeit with the rate of decline easing.

Elsewhere, the rate of output growth sank to the lowest since November 2013, with new orders and jobs growth likewise slackening.

Only modest expansions were seen in both manufacturing and services during the month.

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