US economy accelerates in April
US business activity gained momentum in April after nearly flatlining in March, though factories faced worsening supplier delivery times as the conflict with Iran disrupted supply chains. Those delays helped push a key measure of output prices to its highest level in almost four years.
According to S&P Global, the flash US Composite Purchasing Managers’ Index (PMI) Output Index, which reflects both manufacturing and services sectors, rose to 52.0 in April from 50.3 in March, the weakest reading since September 2023. A reading above 50 signals growth. Economists had expected a more modest increase to 50.6.
Manufacturing showed notable strength, the sector’s PMI climbed to 54.0, a 47-month high, up from 52.3 in March and above expectations of 52.5. A measure of new factory orders also accelerated, rising to 54.8 from 52.3 in March. Meanwhile, the PMI for the vast services sector returned to expansion as well, improving to 51.3 from 49.8 last month, which had marked its first contraction since January 2023.
Economic activity slowdown in eurozone
By contrast, economic activity in the eurozone declined in April, ending a 16-month stretch of growth. The slowdown came as the conflict in the Middle East pushed energy prices and disrupted global supply chains.
The S&P Global’s composite PMI for the region dropped to 48.6 this month, down from 50.7 in March. The fall was driven largely by a sharp contraction in the services sector, which saw its fastest decline in more than five years. Manufacturing, by contrast, continued to expand. Output grew at its quickest pace since last August, lifting overall manufacturing activity to an eight-month high. However, part of this increase reflected customers placing extra orders to build up inventories ahead of possible price rises or potential supply shortages.
The report also noted that the downturn was widespread, with both Germany and France – the two largest economies in the EU, recording contractions in April.
Inflation edges higher in UK
Finally, inflation edged higher in the UK amid the energy price surge, yet a Bank of England rate hike remains unlikely. The Office for National Statistics reported on Wednesday that annual inflation rose to 3.3% in March, up from 3% in February, its highest level since December.
Services inflation also remained stubbornly high, increasing from 4.3% to 4.5%, driven largely by higher transportation costs, especially motor fuels, which have been affected by the ongoing conflict. These figures were in line with economist expectations.
Before the conflict began, the Bank of England (BOE) had anticipated inflation would fall to its two per cent target in April, helped by slowing wage growth and the removal of charges to fund renewable energy projects. However, the war is expected to weigh more heavily on the UK.
According to the International Monetary Fund’s latest forecasts, the country’s high reliance on gas imports and the likelihood of fewer interest-rate cuts this year, prompted the IMF to lower its forecast for growth this year to 0.8% from 1.3% in its January projections.
This article does not constitute legal and/or financial advice and is being issued for information purposes only by Bank of Valletta plc, 58, Zachary Street, Valletta. Bank of Valletta is a public limited company regulated by the MFSA and is licensed to carry out the business of banking and investment services in terms of the Banking Act (Cap.371 of the Laws of Malta) and the Investment Services Act (Cap.370 of the Laws of Malta).
