Eurozone growth expands at fastest pace in six years

Eurozone economic growth is running at its fastest pace in six years according to survey data from the region's purchasing managers.

Separate data showed that the recovery was being led by record levels of confidence from Germany's businesses.

PMI data indicate further growth

Manufacturing growth led the advance as the purchasing managers' index for the industrial sectors rose in May to 57 from 56.7 in April, and beat analysts' forecasts of a dip back to 56.5.

The survey of the services sector was a little more disappointing as the index defied expectations of a repeat of April's 56.4, dipping to 56.2 in May.

Overall, the composite index did repeat April's 56.8 reading, defying forecasts of a slip back to 56.6, and maintaining a six-year high.

Momentum builds

Purchasing manager indexes are compiled from survey material on company inventories, employment, new orders, production and supply. Managers are also asked about how they expect business conditions to develop over the coming months.

An index reading above 50 indicates expansion – the higher above 50 it moves, the greater the pace of growth.

"The eurozone economy has maintained its excellent momentum in May as the composite PMI held out at 56.8, the same reading as in April," said Bert Colijn at ING.

He added: "This indicates that growth in the second quarter continues to be strong and could even surprise on the upside on these strong figures."

Germany’s IFO hits record

Both Germany's and France's PMIs increased in May, and output from both manufacturing and services grew across the shared currency region. Managers said that job growth was accelerating to address production backlogs that hit new highs.

Colijn continued: "This means that domestic demand continues to drive the strong growth in the eurozone."

IFO Institute in Munich: IFO's measure of business sentiment hits record levels in May - Source: Wikimedia Commons

And there was further evidence that Germany's economic expansion was hitting top gear as the country's leading economic institute IFO published its monthly business sentiment report.

IFO's main business climate index climbed to its highest level on record in May, hitting 114.6 from April's 112.9 and beating forecasts of 113.1. IFO began compiling the index in 1991.

The sub indexes for current trading conditions and future expectations both rose ahead of forecasts.

IFO's indexes are compiled using survey data from monthly interviews with about 7,000 businesses across a wide spectrum of industry sectors.

No change in German GDP

Germany also published the second reading of its first-quarter gross domestic product data and there were no changes to first estimate published in April.

Annualised growth in the eurozone's largest economy ran at 1.7% in the first three months.