Euro manufacturing and services expand

Euro-area services and manufacturing expanded faster than economists forecast in April, indicating the economy continued to strengthen at the start of the second quarter.

A composite index based on a survey of purchasing managers in both industries rose to 54 in April from 53.1 in March, London-based Markit Economics said.

The report supports European Central Bank president Mario Draghi’s view that the 18-nation euro area is in a “modest” recovery. Still, the crisis in the Ukraine and the strength of the euro are threatening to undermine growth, while Markit’s survey may reinforce policy makers’ deflation fears, showing that companies cut prices for a 25th straight month.

“While the crisis in Ukraine remains the biggest risk to our optimistic outlook for eurozone growth, the April PMIs show no evidence that the situation has had any major impact so far,” said Christian Schulz, of Berenberg Bank in London. “In the short-run, below-expectation inflation figures could trigger more action, but the arguments of the hawks are being strengthened by the buoyant performance in parts of the eurozone.”

Markit said its euro-area manufacturing index rose to 53.3 in April from 53 in March, while a services gauge increased to 53.1 from 52.2. Both exceeded economists’ forecasts.

Chris Williamson, chief economist at Markit, said: “The big concern for the eurozone will be the outlook for prices. There will be growing fears that deflationary pressures are intensifying and that the ECB needs to respond with more than just words to the recent appreciation of the exchange rate.”