The WSJ reports,"Thursday's initial reading of the euro-zone purchasing managers index underlines that. The headline composite index dipped marginally to 53.9 in May from 54.0 in April, index compiler Markit said. But on a three-month basis, the index has risen to 53.7 in March-May from 52.8 in December-February, suggesting sustained acceleration.
May also saw the services index rise to a 35-month high, suggesting increasing domestic demand; the overall employment index also rose, indicating that businesses are hiring. Somewhat worryingly, manufacturing showed less buoyancy, with the index hitting a six-month low of 52.5. That bears watching closely.
But the overall mood chimes with other survey measures. The European Commission's flash consumer confidence index showed a further large increase in May, taking it back to levels not seen since late 2007. The Commission's broad economic sentiment indicator is above its long-run average".
"There are sticking points. France is a clear problem: Markit's flash PMI fell to 49.3. That may not indicate a contraction in GDP, as the French state does a lot of economic heavy lifting. But zero growth in a country that accounts for just over a fifth of the currency bloc's output makes a decisive recovery difficult, even if Germany is maintaining strong momentum.
Elsewhere, Italy's surprise first-quarter GDP contraction of 0.1% remains a puzzle. While a flash PMI isn't available for Italy, Markit says that the euro zone outside of France and Germany saw improved output growth. That suggests a stutter in Italy's progress, rather than a renewed downturn. And there should yet be a rebound in the Netherlands after plummeting energy demand caused a shock contraction of 1.4% in the first quarter that knocked a full 0.1 percentage point off euro-zone growth.
Given the gap between survey and hard data, it might be over-optimistic to translate the current PMI into annualized growth of 2%, as history might suggest. But even allowing for that, it should point to growth of 1.5%, JP Morgan thinks. That would be welcome—if slow—progress".
