Economy

Euro zone's economic recovery gathers pace in April with France returning to growth

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Key Points
  • European countries have stepped up their vaccination rates, but some nations remain in lockdown amid a third wave of Covid-19 infections.
  • IHS Markit's flash composite PMI for the euro zone, which looks at activity across both manufacturing and services, hit 53.7 in April versus 53.2 in March.
  • A reading above 50 represents an expansion in economic activity.

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Despite containment measures, euro zone acitivty expands in April

LONDON — Business activity in the euro zone expanded again in April, preliminary data showed on Friday, providing some positive momentum for the second quarter.

European countries have stepped up their vaccination rates, but some nations remain in lockdown amid a third wave of Covid-19 infections.

IHS Markit's flash composite PMI for the euro zone, which looks at activity across both manufacturing and services, hit 53.7 in April versus 53.2 in March. A reading above 50 represents an expansion in economic activity.

Chris Williamson, chief business economist at IHS Markit told CNBC that "containment measures to fight coronavirus were actually tightened and normally we would expect the pace of economic activity to weaken but it has done the opposite."

He added that companies were optimistic about the future and preparing for better times ahead.

Analysts are also somewhat optimistic for the coming months as governments prepare to ease some of Covid lockdown measures. Italy is opening parts of the economy on Monday, France is considering a cautious reopening from mid-May and Greece has plans to open around that time too.

Going forward, Williamson said: "There is going to be a switch between spending on goods and spending on services."

Speaking on Thursday, European Central Bank President Christine Lagarde said: "Incoming economic data, surveys and high-frequency indicators suggest that economic activity may have contracted again in the first quarter of this year, but point to a resumption of growth in the second quarter."

She added, however, that there is an "overall environment of uncertainty" regarding the economic outlook.

France expands for the first time since August

The flash France composite output index reached 51.7 in April, representing a nine-month high and the first expansion in business activity since August.

"With an expansion in services activity and another strong rise in manufacturing production during April, the French private sector finally managed to achieve growth," Eliot Kerr, an economist at IHS Markit, said in a statement.

The positive momentum in the French economy came from the services sector, with a slight slowdown in manufacturing.

Meanwhile, business activity expansion in Germany slowed slightly in April. The flash Germany PMI composite output index hit 56.0, from 57.3 in March.

The German services sector stalled slightly and manufacturing faced some supply shortages.

Phil Smith, associate director at IHS Markit, said "the imbalance of demand and supply across manufacturing supply chains continues to drive up businesses' costs, which are now rising at the fastest rate for more than a decade."

He added that "while factory gate prices are increasing rapidly in line with strong demand for goods, services firms remain more cautious with their pricing, which somewhat limits the spillover to overall consumer prices."