Euro zone economic growth slows in April, services near stagnation, PMI shows

LONDON (Reuters) -

The euro zone economy continued to expand in April but at a slower pace as demand weakened and the dominant services sector nearly stagnated, suggesting the region's recovery remains fragile, a survey showed.

The HCOB Eurozone Composite PMI Output Index, compiled by S&P Global, fell to 50.4 from 50.9 in March. The reading was only just above the 50 mark separating growth from contraction.

"Euro zone economic growth slowed at the start of the second quarter, following a pick-up in the first three months of the year. The services sector, which is a major player, practically stagnated in April," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

The services PMI dropped to 50.1 from 51.0 in March, its lowest reading in five months and barely above the neutral threshold.

Meanwhile, optimism among services firms weakened and the business expectations index fell to 55.1 from 57.8, a low not seen since late 2022.

Overall demand declined for an 11th consecutive month and at a slightly faster rate than in March, with both manufacturers and service providers reporting weaker sales. The new business index fell to 49.1 from 49.5.

Export orders also fell though at the slowest pace in nearly three years.

Businesses had to rely on working through backlogs to maintain activity levels, with outstanding orders decreasing for the 25th straight month.

Despite the tepid growth, employment across the bloc rose for a second month, though the increase was marginal and limited to the services sector. Manufacturing firms cut jobs for a 23rd consecutive month.

The survey showed considerable variation across the euro zone. Ireland led growth with a PMI of 54.0, though this marked a two-month low. Spain followed at 52.5 while Italy registered 52.1, an 11-month high.

Germany, Europe's largest economy, barely expanded with a reading of 50.1, while France remained in contraction at 47.8.

On the inflation front, April's data revealed further cooling in both input cost and output charge inflation, with input cost pressures easing to their weakest in five months.

"Inflation is down for sales prices and continued to trend lower. Many members of the European Central Bank have been hinting at another interest rate cut in June, and these latest figures seem to support their stance," de la Rubia said.

(Reporting by Jonathan Cable; Editing by Toby Chopra)