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Euro zone Business Growth Accelerates as Services Expanded

LONDON, May 5 (Reuters) - Euro zone business activity accelerated last month as the bloc’s dominant services industry shrugged off renewed lockdowns and returned to growth, according to a survey on Wednesday that also showed firms were facing soaring costs for raw materials.

Europe is enduring a third wave of coronavirus infections, forcing some governments to renew lockdown measures to contain its spread, but factories have largely remained open and the services industry has adapted.

So IHS Markit’s final composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, climbed to 53.8 last month from March’s 53.2. That was just ahead of the preliminary 53.7 reading and comfortably above the 50 mark separating growth from contraction.

The bloc’s economy is set to grow 1.5% this quarter, a Reuters poll found last month.

“April’s survey data provide encouraging evidence that the euro zone will pull out of its double-dip recession in the second quarter,” said Chris Williamson, chief business economist at IHS Markit.

“A manufacturing boom, fuelled by surging demand both in domestic and export markets as many economies emerge from lockdowns, is being accompanied by signs that the service sector has now also returned to growth.”

A PMI for the service industry rose to 50.5 from 49.6, pipping the flash 50.3 estimate. That followed a manufacturing PMI on Monday that showed factory activity growth surged to a record high in April.

But supply chain disruptions caused by the pandemic led to rocketing prices for manufacturers. The composite input prices index jumped to 64.0 from 61.9, its highest in 10 years.

“While the revival in the economy is bringing a rise in inflationary pressures, these so far seem largely confined to the manufacturing sector, with service sector costs – which form a major component of the core inflation measures tracked by the ECB – remaining only modest,” Williamson said.

Although the euro zone vaccine programme was initially hit with problems it has started to pick up and optimism amongst services firms improved. The business expectations index climbed to 68.4 from 67.4, its highest in over a decade.

Reporting by Jonathan Cable; Editing by Catherine Evans

Source: Reuters

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