engine of activity… and gasoline for inflation


The evolution of the service sector It comes to reflect in recent months the face and the cross of the current economic situation. Being one of the engines that allows the economy to be holding the type (or accelerating) In the countries of the Eurozone throughout this first part of the year, it is also responsible, along with food, for the fact that inflation continues to put pressure on consumers’ pockets. In April, the latest data available, the annual CPI rate climbed in the region to 7% and the underlying rate, which excludes the most volatile elements from its calculation, barely moderated 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 the advance from the contraction. This data consolidates “robust economic growth so far in the second quarter of the year”, notes the signature. 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 services has not yet recovered, since in April it barely rose 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 also contributing to opening a gap in regional economic growth that adds to the gap between the boom in this sector and manufacturing in recession. “The services boom is a relief for growth, but a headache for inflationas price pressures increased even more,” according to Ben Laidler, eToro’s global markets strategist. The fact that they are outperforming the industry benefits countries where these types of activities are more important in 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 dismissed 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 located very high. 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 policy of raising interest rates for longer than initially expected.

The national economy is responding better than expected in previous months, thanks to the acceleration of exports, which shot up 14.6% in the first quarter in year-on-year terms and they reached 102,683.9 million euros, a new all-time high for that period, as confirmed last week by the Ministry of Industry, Commerce and Tourism. As Spain has achieved 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 expansive 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 continued to increase its workforce for another month.

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