Eurozone: Is a service-oriented economic recovery feasible?
2024-05-02
■The Eurozone sentiment index has increased, especially with significant improvements in the service industry sentiment.
■The service industry is not easily affected by economic fluctuations, but becoming the main driving force of economic growth is challenging.
Encouragingly, the sentiment index in the Eurozone has been on a steady rise in recent months, signalling promising signs of economic recovery. Despite the sluggish production and consumption activities, the confidence of enterprises, consumers, and investors has shown significant improvement, surpassing expectations. The positive turn of the economic surprise index in February and its continued significant positive range further bolsters this optimism. Based on the weighted average of the differences between financial indicators and market expectations over the past 30 days, this index tends to rise before the economic recovery, similar to the sentiment index, indicating a recovering economy.
In terms of the prosperity index, particularly for service industry enterprises, the sense of prosperity has seen a remarkable upswing. According to the initial value of the Eurozone Purchasing Managers Index in April, the manufacturing industry has contracted for three consecutive months, with activity hindered, while the service industry has expanded for three straight months. Compared with manufacturing, construction, retail, and other sectors, the operating conditions of the service industry in the Eurozone have improved significantly, which is also reflected in the Eurozone's economic prosperity index and the German IFO Corporate Prosperity Index. Despite the almost zero economic growth in the Eurozone from October to December 2022, service industry activity continues to expand. Contrary to lower-than-expected industrial production and retail sales, the service industry production index and service industry sales index have maintained an upward trend and far exceeded pre-pandemic levels. This indicates that service industry activity and transaction volume are steadily expanding, fuelling optimism for the Eurozone's economic recovery.
However, I hold a slightly sceptical attitude as to whether the service industry can drive the accelerated growth of the Eurozone economy in the future. Generally speaking, many service products are labor-intensive and difficult to store and transport. Therefore, although the impact of inventory fluctuations and other factors on the service industry is relatively small compared to the manufacturing industry, except for some industries such as information technology, the sharp increase in quantity is limited. In fact, there are significant differences in the growth rate of information, communication, and other aspects in the Eurozone service industry production index. Due to this characteristic, the service industry is less susceptible to economic fluctuations and tends to expand steadily at a stable rate. Although it plays a role in stabilizing the economy and contributes to avoiding a recession in the eurozone, achieving true economic recovery still requires a recovery in manufacturing activities.
■The service industry is not easily affected by economic fluctuations, but becoming the main driving force of economic growth is challenging.
Encouragingly, the sentiment index in the Eurozone has been on a steady rise in recent months, signalling promising signs of economic recovery. Despite the sluggish production and consumption activities, the confidence of enterprises, consumers, and investors has shown significant improvement, surpassing expectations. The positive turn of the economic surprise index in February and its continued significant positive range further bolsters this optimism. Based on the weighted average of the differences between financial indicators and market expectations over the past 30 days, this index tends to rise before the economic recovery, similar to the sentiment index, indicating a recovering economy.
In terms of the prosperity index, particularly for service industry enterprises, the sense of prosperity has seen a remarkable upswing. According to the initial value of the Eurozone Purchasing Managers Index in April, the manufacturing industry has contracted for three consecutive months, with activity hindered, while the service industry has expanded for three straight months. Compared with manufacturing, construction, retail, and other sectors, the operating conditions of the service industry in the Eurozone have improved significantly, which is also reflected in the Eurozone's economic prosperity index and the German IFO Corporate Prosperity Index. Despite the almost zero economic growth in the Eurozone from October to December 2022, service industry activity continues to expand. Contrary to lower-than-expected industrial production and retail sales, the service industry production index and service industry sales index have maintained an upward trend and far exceeded pre-pandemic levels. This indicates that service industry activity and transaction volume are steadily expanding, fuelling optimism for the Eurozone's economic recovery.
However, I hold a slightly sceptical attitude as to whether the service industry can drive the accelerated growth of the Eurozone economy in the future. Generally speaking, many service products are labor-intensive and difficult to store and transport. Therefore, although the impact of inventory fluctuations and other factors on the service industry is relatively small compared to the manufacturing industry, except for some industries such as information technology, the sharp increase in quantity is limited. In fact, there are significant differences in the growth rate of information, communication, and other aspects in the Eurozone service industry production index. Due to this characteristic, the service industry is less susceptible to economic fluctuations and tends to expand steadily at a stable rate. Although it plays a role in stabilizing the economy and contributes to avoiding a recession in the eurozone, achieving true economic recovery still requires a recovery in manufacturing activities.