Eurozone business activity growth accelerated to an 11-month high in April, indicating that the economy has gained further growth momentum at the start of the second quarter.

The upturn was driven by reviving demand and was accompanied by the largest increase in employment for nearly a year.

Inflation pressures meanwhile moderated further, with input price falling at an increased rate in manufacturing amid a record easing of supply constraints to help drive the overall rate of selling prices inflation down to the lowest for two years.

Business confidence in the outlook has also remained resilient, well above last year′s lows, despite recent banking sector stress.

Less positively, growth has become increasingly unbalanced, driven solely by the service sector as manufacturing output has fallen back into decline amid slumping demand for goods.

Furthermore, overall input cost and selling price inflation rates remain elevated by historical standards, expecially in the service sector.

The HCOB Eurozone Composite PMI. Source Trading economics

Output and demand

Composite PMI index rose for a sixth consecutive month in April to 54.4 up from 53.7 in March, its highest since May last year.

The latest reading indicated a fourth consecutive month of growth with the rate of expansion having accelerated throughout the year to date, contrasting with the sixth month period of decline seen in the second half of 2022.

Growth became increasingly uneven in April, however with the service sector reporting its strongest expansion for a year whereas manufacturing output contracted at the sharpest rate since December, falling back into decline after two months of marginal growth.

The resulting outperformance of services relative to manufacturing was the widest since early 2009 and the survey has not yet previously recorded such a strong service sector expansion at a time of manufacturing decline.

The improved performance was driven in part by faster growth of new orders. Measured across manufacturing and services, new orders rose for a third consecutive month in April, expanding at the steepest rate since May 2022.

However, while growth of new business in the service sector hit the highest since April 2022, new orders in the manufacturing sector fell at the steepest rate for four months.

Order book growth nevertheless lagged that of output, the relatively faster pace of output growth being supported by companies fulfilling orders placed in prior months, causing backlogs of work to fall, albeit exclusively in manufacturing.

Moreover, employment growth in manufacturing slowed to the lowest seen over the past 27 months, but service sector jobs growth picked up to the fastest since July 2007. The resulting overall increase in employment was the largest in 11 months.