News & Analysis

There was a consistent theme across today’s euro-area PMIs. Activity levels surged in the services sector due to a robust demand backdrop, while manufacturing activity continued to contract.

The bifurcation in the performance was the most stark since early-2009, while it must be noted that growth in the services sector has never been so strong at the same time output in manufacturing has contracted. Owing to the better demand backdrop, firms within the services sector continued to hire in April, prompting input costs to rise sharply. However, the pace at which these input costs were passed onto the consumer slowed to a 15-month low, although the pace of output price growth still remained above pre-pandemic averages. The data, despite somewhat tainted in France due to the ongoing protests over the pension reform bill, in effect highlights the ongoing problem the ECB faces. High levels of demand for services is propping up core inflation, even as monetary conditions tighten and core goods inflation is set to roll over. Overall, while the data does show some progress being made in the form of slower output inflation, the hawks amongst the Governing Council will find more support in today’s reports for a 50bp hike at May’s meeting than the doves will when pushing back in favour of 25bps.


  • Composite: 54.4 vs 53.7 expected
  • Services: 56.6 vs 54.5 expected
  • Manufacturing 45.5 vs 48.0 expected


  • Composite: 53.8 vs 52.9 expected
  • Services: 56.3 vs 53.5 expected
  • Manufacturing: 45.5 vs 47.8 expected


  • Composite: 53.9 vs 52.9 expected
  • Services: 55.7 vs 53.4 expected
  • Manufacturing: 44.0 vs 45.7 expected

The most surprising data points came out of France this morning, where ongoing protests about President Macron’s pension reform bill had a visible effect on manufacturing activity. However, S&P global highlight within the PMI report that a corresponding impact on services activity isn’t as noticeable, making the huge beat in service sector activity all the more impressive. The collapse in manufacturing activity due to the protests and the strong beat in the services PMI make France’s results the most extreme example of the uneven growth path currently underway in the eurozone. Nonetheless, the details of the French data fall in line with those seen in both Germany and the eurozone as a whole.

The level of new incoming business ticked up for a second consecutive month, with the rate of new orders increasing the most in nearly a year.

Despite firms continuing to try and increase capacity to face the elevated level of demand, this couldn’t be achieved quick enough. This led not only to an increase in the volume of work outstanding, but also wage pressures intensifying as firms in the services sector were forced to hire in an increasingly competitive labour market. While higher wage costs and increased demand suggests that the pace of output inflation has intensified, this wasn’t the case as the aggregate measure in France fell to its slowest pace in 16-months. Although this is a welcome sign of disinflation for the ECB, evidence that the demand environment for services remains unimpaired by the recent tightening of monetary conditions and the latest financial stability scares will leave the hawks amongst the Governing Council pressing for one last 50bps hike before a slower pace of rate increases is adopted.

While money market pricing remained fairly stable throughout the publication of today’s flash PMI data, if compounded by another firm core inflation reading towards the end of next week, and more specifically a strong core services reading, we believe markets will grow more confidence in pricing a 50bp hike from the ECB even before the central bank releases the results of its quarterly bank lending survey on May 2nd.



Simon Harvey, Head of FX Analysis


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