An indicator of Eurozone’s private sector activity improved more than expected in May, renewing hopes that the economy is inching towards a recovery. Nonetheless, the indicator remained in negative territory, signaling sharp deterioration in overall business activity.
The composite output index, which measures the performance of the both manufacturing and service sectors, rose to a three-month high of 47.7 in May from 46.9 in April, flash results of a survey by Markit Economics showed Thursday.
Readings below 50 indicates contraction in activity. Economists had predicted an increase in the index to 47.2.
New orders across the private sector fell sharply again in May and for the twenty-second successive month. The rate of decline was unchanged from that seen in April, Markit said.
The modest improvement in May raises hopes that overall Eurozone economic activity is inching towards stabilization, said Howard Archer, Chief European and UK Economist at IHS Global Insight.
“It is worrying to see that the decline in new orders was unchanged at a significant level in May, so a seventh successive quarter of Eurozone GDP decline, albeit modest, remains very possible in the second quarter,” Archer said.
The purchasing managers’ index, a gauge of activity in the manufacturing sector, rose to 47.8 from April’s score of 46.7. This was forecast to rise to 47. The manufacturing output index rose to a four-month high of 48.2 from 46.5 in April.
The services activity index edged up to 47.5 in May from 47 in the previous month, while expectations were for a modest increase to 47.2.
Eurozone’s economic downturn eased in the first quarter with the gross domestic product falling at a slower pace of 0.2 percent quarter-on-quarter.
In May, the European Commission cut its economic forecast for euro area and said the economy will contract 0.4 percent in 2013. The economy is expected to start recovering from its record-long recession in 2014.
“May’s euro-zone PMI survey adds to the recent run of slightly more encouraging news from the region, but there is little sign that the region is about to emerge from recession,” said Ben May, an economist at Capital Economics.
Earlier in the month, the European Central Bank reduced the main refinancing rate by 25 basis points to a record low 0.50 percent to support the economy. ECB Chief Mario Draghi has said that the monetary policy will remain accommodative “as long as needed.”
Markit said that the employment at Eurozone’s private sector firms fell for the seventeenth consecutive month, with the rate of job losses rising to the highest since February.
The survey found strong divergences between the region’s two largest economies. Business activity declined for a second successive month in Germany, but the downturn was only very marginal. Meanwhile, a steep rate of decline in French activity was reported in May.