The recovery in the eurozone economy gathered pace at the start of the second quarter, with the combined output of the manufacturing and service sectors rising at the fastest pace for almost three years in April. The outlook for the upturn was also positive, with new orders and backlogs of work rising further and a return to growth for employment.

At 54.0 in April, unchanged from the flash estimate, the final Markit Eurozone PMI® Composite Output Index signalled expansion for the tenth successive month and reached its highest level since May 2011. Growth was again led by the manufacturing sector, with goods production showing its steepest gain since January. Service sector business activity rose at the fastest pace for 34 months.

Composite output growth was fastest in Ireland and Spain during April – reaching eight- and seven-year highs respectively – as inflows of new business strengthened in both nations. Germany and Italy also saw sharper expansions in activity and new orders. France was the only nation to buck this trend, treading water with near stagnant output growth and a slight drop in new business. The sluggish performance of France was mainly centred on the service sector, highlighting the ongoing weakness of the French domestic market.

Eurozone employment ticked higher for the second time in the past three months in April. Although the rate of expansion was only modest, it was nonetheless the sharpest registered in over two-and-a-half years. Ireland, Spain and Germany recorded increases in payroll numbers, with rates of jobs growth hitting a near-eight year high in Ireland and a two-month peak in Germany. The increase in Spain was the second so far this year, following a sustained period of reduction running through much of 2008-2013. In contrast, levels of employment continued to fall in France and Italy.

Input costs increased only slightly in April, rising at the slowest pace since last June. Manufacturers saw purchase prices fall at the sharpest pace for nine months, while service sector costs rose at the weakest rate in ten months. Italy registered a slight drop in input prices for the first time since June 2013, while Spain was the only nation to signal a faster pace of cost inflation.

Price competition among companies seeking to attract new business led to the sharpest drop in selling prices since August 2013. Output prices have now fallen for 25 successive months.

The Eurozone Services Business Activity Index posted 53.1 in April, unchanged from the earlier flash estimate and above March’s 52.2. The headline index has signalled an expansion of services output for nine successive months.

Concurrent growth of business activity was registered in all five of the nations covered by the survey for the first time since May 2011. Rates of expansion hit an 86-month high in Ireland, an 85-month record in Spain and a two-month peak in Germany. Italy returned to growth, whereas the upturn in France eased to near-stagnation.

Underpinning the latest expansion of business activity was the sharpest growth of incoming new work since June 2011. New orders rose in Germany, Italy, Spain and Ireland, but fell slightly in France. The outlook for the eurozone service sector also remained positive, with business confidence* staying on the plus-side (despite dipping to a four-month low) and levels of outstanding business stabilising following a near three-year sequence of sustained declines.

This encouraged job creation at service providers, with a slight increase in employment registered for the third time in the past five months. Payroll numbers were expanded in Germany, Spain and Ireland, but reduced in France and Italy.

Input price inflation eased for the third month running in April, as average costs rose at the slowest pace since last June. This mainly reflected a sharp easing in the rate of increase in Italy to a 55-month low. In contrast, input price inflation accelerated in Germany, France, Spain and Ireland.

April saw output charges fall for the twenty-ninth month running, as companies cut prices to stimulate client demand. Only Germany and Ireland reported (negligible) increases in output charges. Rates of decline eased in Italy and Spain, but accelerated in France.

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