Eurozone growth rocketed in May as lockdowns ease

Eurozone business activity saw a surge in May as the lifting of lockdown restrictions injected life into the EU's services industry, a survey by IHS Markit showed, echoing data published earlier in the week which showed factories had their best month on record.

A ramping up of vaccine programmes across the bloc and a fall in reported daily cases of Covid-19 has enabled governments to remove some measures imposed to stop the spread of the virus.

IHS Markit's final composite Purchasing Managers' Index (PMI), seen as a barometer of economic health, jumped to 57.1 last month from April's 53.8, its highest level since February 2018.

May's final reading was ahead of a preliminary 56.9 indication and comfortably above the 50 mark separating growth from contraction.

Read more: Eurozone should see return to pre-crisis levels by 2022

An index covering the service industry soared to a near three-year high of 55.2 from 50.5, just beating the 55.1 flash estimate.

"The eurozone composite and services PMIs for May came out in line with expectations and continue to show that confidence is high," said Neil Birrell, chief investment officer at UK-based asset management firm Premier Miton.

"With ongoing government support and loose policy from the ECB it should be expected that the recovery will remain robust and also fed by the pick-up in activity around the world."

The European Central Bank will start tapering its pandemic purchases later this year but won't raise interest rates until at least 2024, according to a Reuters poll published earlier on Thursday.

ECB chief Christine Lagarde said on Wednesday the Bank would support the eurozone "well into" its recovery from a pandemic-induced double-dip recession.

Suggesting the upswing would continue, the services new business index was the highest since early 2018 the overall composite new orders reading bounced to a near-record 58.4 from 53.4 - its highest since June 2006 - as pent-up demand was released.

Read more: Eurozone sees negative inflation four-months running

German services returned to growth in May, helped by falling coronavirus infections and a loosening of COVID-19 restrictions, lifting overall private-sector output in Europe's largest economy.

French business activity surged as an easing of the coronavirus lockdown fired up the service industry while in Spain the service sector expanded at the fastest pace since 2015. Meanwhile, Italy showed signs of recovery.

In the UK, outside both the eurozone and the EU, the services sector recorded the biggest jump in activity in 24 years, after pubs and restaurants were allowed to resume serving customers indoors following months of lockdown.

Alongside the recovery in services, eurozone manufacturing activity expanded at a record pace in May, according to a sister survey on Tuesday which suggested growth would have been even faster without supply bottlenecks that have led to an unprecedented rise in input costs. 

The euro area was expected to emerge from a double-dip recession this quarter and expand 1.5%, a poll by Reuters found.

Read more: Brexit has hit food and drink exports, analysis shows

Following a slow start, vaccination drives across the region have accelerated and with restrictions being eased optimism about the year ahead increased. The services business expectations index rose to 71.2 from 68.4, its highest since January 2004.

"The relationship between the surveys and GDP has broken down since the pandemic began, but the strengthening activity indicators bode well nonetheless," said Jack Allen-Reynolds at Capital Economics.

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