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Good news for the global economy – businesses in the US and Europe are gaining momentum

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Global economic growth appears to be expanding, with recent surveys showing a pick-up in business activity in May in both the US and the eurozone.

In 2023, the Eurozone experienced a contraction in its economy due to factors such as the sharp rise in energy and food prices following Russia’s invasion of Ukraine, as well as the subsequent increase in interest rates to control inflation.

Conversely, during the same period the US economy noted steady growth, resulting in a significant difference in growth between the two regions. However, recent data points to a recovery in both economies, with signs of renewed acceleration in the US and stronger growth in the Eurozone.

The S&P Global Flash US Composite PMI, which measures activity in both the manufacturing and services sectors, hit a 25-month high in May, indicating robust expansion. Similarly, business activity in the Eurozone expanded for a third consecutive month, with the overall composite PMI (Purchasing Managers Index) reaching its highest level in a year.

Germany, a key player in the eurozone, led the rise in activity, driven by a strong services sector and an improvement in manufacturing. But polls showed the UK economy slowing after a strong start to the year, prompting Prime Minister Rishi Sunak to call for a snap election.

The surveys also pointed to further acceleration in the Indian economy and a pick-up in Japan after contracting in the first quarter. At the same time, Australia saw a slight slowdown in growth in May.

Despite the positive indicators, concerns about inflation and wage growth remain. While businesses reported slower price growth, wage growth in the eurozone beat expectations, which could complicate the European Central Bank’s (ECB) plans to cut interest rates.

ECB Vice President Luis de Guindos highlighted the uncertainty surrounding future rate cuts, saying the ECB would closely monitor economic data before making decisions. Economists suggest that the continued resilience of the eurozone economy could lead to a more cautious approach to lowering borrowing costs after the ECB’s initial move.


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