Euro zone business activity expands at fastest rate in a year, PMI shows

BENGALURU (Reuters) - Euro zone business activity expanded at its quickest rate in a year in May as growth in the bloc's dominant services industry outpaced contraction in manufacturing, according to a private survey, which also showed price pressures easing.

HCOB's composite Purchasing Managers' Index (PMI) for the currency union, compiled by S&P Global and seen as a good gauge of overall economic health, rose to 52.2 in May from April's 51.7, its highest since May 2023.

Although it was a tad below a preliminary 52.3 estimate, it remained above the 50 mark separating growth from contraction for the third straight month.

"The spectre of recession is off the table. This is thanks to the service sector, where the upswing has recently broadened," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. "Overall, the service sector is likely to ensure that the euro zone will show positive growth again in the second quarter."

The services PMI eased slightly to 53.2 last month from an 11-month high of 53.3 in April, just below the flash estimate of 53.3.

A sister survey released on Monday showed the long-running downturn in factory activity might be turning a corner. An index measuring manufacturing activity rose to 47.3 in May from April's 45.7.

Improving overall demand boosted optimism about the year ahead. The composite future output index rose to 63.1 in May, its highest since February 2022.

The brightening outlook encouraged services firms to increase headcount at the fastest pace in 11 months.

Meanwhile, overall price pressures eased with output prices increasing at the slowest pace in six months. That could provide reassurance to the European Central Bank which is widely expected to deliver a 25-basis-point interest rate cut on Thursday.

"Reduced inflation pressures are evident in both costs and selling prices," de la Rubia added.

"However, the PMI price indices do not yet give the all-clear, as they are unusually high in the context of the rather weak economic situation."

(Reporting by Indradip Ghosh; Editing by Christina Fincher)