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Heads and tails of services: the engine of activity… and gasoline for inflation

Date: April 24, 2024 Time: 09:47:20

The evolution of the services sector has come to reflect the face and the cross of the current economic situation in recent months. Being one of the engines that allows the economy to hold up (or accelerate) in the Eurozone countries throughout this first part of the year, it is also responsible, along with food, for the fact that inflation continues to put pressure on the consumer pocket. In April, the latest data available, the annual CPI rate climbed in the region to 7% and the underlying rate, which excluded the most volatile elements from its calculation, barely eased to 5.6%.

Indicators such as the PMI activity index for the euro zone, published on Tuesday by S&P Global, confirm that the tertiary sector is driving activity in May for the fifth consecutive month. Its advance has moderated slightly, going from 54.1 points in April to 53.3, although it remains above 50 points, the level that separates advance from contraction. This data consolidates “robust economic growth so far in the second of the year,” says the quarterly firm. The good performance of the sector contrasts with the loss of activity in the industry, which is being affected by weak demand and the increase in the cost of financing with the rise in interest rates. In fact, the manufacturing sector has been in contraction in the euro area since last August.

Last week, the chief economist of the European Central Bank (ECB), Philip Lane, pointed to the need to analyze core inflation for services and goods separately. The reason is that, unlike the core inflation of goods, the increase in the prices of still services has not recovered, since in April it rose just 0.1 points to 5.2% year-on-year. “Signs of continued strength in services and the component of prices paid will probably encourage the ECB’s hardline bets,” they point out from Monex Europe.

This strength of services is contributing, in addition, it opens a regional economic growth gap that adds to the abyss between the boom of this sector and manufacturing in recession. “The services boom is a relief for growth but a headache for inflation as price pressures mounted further,” according to Ben Laidler, global markets strategist at eToro. The fact that its behavior is better than that of the industry benefits countries where this type of activity has more weight in the GDP, as is the case of Spain, Greece or Portugal, which are showing a higher growth rate, and, seeing how their labor markets benefit from it.

Inflation of services in the North

The latter has led, for example, the General Council of Economists (CGE) to review the employment rate forecast for this year to 12.7%, from the 12.87% that was laid off in the fourth quarter of last year. In the case of the countries of the North, the pressures in the sector do not come so much from the progress of the activity itself as from the wage increase, which means that in Austria, Belgium or the Netherlands the inflation of services is felt much higher. above average, compared to the relative moderation observed in the southern European states. This fact may have a decisive weight in the next decisions of the ECB, prolonging its rate hike policy for longer than expected.

The National Economy Is Responding Better Than Expected In Previous Months, Thanks To The Acceleration Of Exports, Which Soared 14.6% El Primere In Tranual Terms And Reached 102,683.9 Million Euros, A New Historical Maximum For That Period, as confirmed last week by the Ministry of Industry, Commerce and Tourism. As Spain has obtained greater control over prices, the differential with Europe “is benefiting our market,” says Salustiano Velo, dean of the Lugo College of Economists and member of the CGE.

All in all, the national industry is going through a situation similar to that of its euro partners… as are services. The PMI for the tertiary sector remained in an expansionary zone although it moderated its advance in April to 57.9 points (compared to 59.4 in March). It is, however, the second highest level since November 2021. However, the manufacturing sector once again sees its activity contract after two consecutive months of growth -in April it fell 2.3 points, to 49 due to a drop in new orders and a slowdown in production growth. Despite this, the resilience that the labor market has been showing can also be seen in this sector, since the industry will continue to increase its workforce for another month.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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