By Jonathan Cable
LONDON (Reuters) -Overall business activity in the euro zone expanded at its fastest pace in nearly a year this month as a buoyant recovery in the bloc's dominant service industry more than offset a deeper downturn in manufacturing, a survey found.
The divide between services firms and factories was also evident in the country breakdown for Germany and France, the bloc's two biggest economies and the only ones to publish preliminary readings of the survey.
HCOB's preliminary composite euro zone Purchasing Managers' Index (PMI), compiled by S&P Global, bounced to 51.4 this month from March's 50.3, well ahead of expectations in a Reuters poll for 50.7 and marking its second month above the 50 level separating growth from contraction.
"The euro area economy has returned to growth. The PMI for the services sector rose further in April ... However, the picture is clouded by the unexpected decline in the manufacturing index," said Christoph Weil at Commerzbank (ETR:CBKG).
Euro zone economic growth is projected to be 0.2% this quarter and 0.3% in Q3, a Reuters poll published on Monday showed.
The flash services PMI soared to 52.9 from last month's 51.5, ahead of all expectations in the Reuters poll which had a median forecast for a more modest rise to 51.8.
But the manufacturing PMI dropped to 45.6 from 46.1, confounding expectations in a Reuters poll for a lift to 46.6. It has been below 50 since mid-2022.
An index measuring manufacturing output did, however, nudge up to 47.3 from 47.1.
Indexes measuring demand also highlighted the division between the two sectors. The services new business index rose to an 11-month high of 52.1 but the manufacturing new orders reading fell to a four-month low of 43.8 from 46.0.
Private sector activity in Germany, Europe's largest economy, returned to growth this month, driven by a solid rise in activity in the country's service sector and an easing in the rate of decline in factory production.
In France the dominant services industry expanded for the first time in almost a year, helping offset continued weakness in manufacturing.
Meanwhile in Britain, outside the European Union, businesses recorded their fastest growth in activity in nearly a year, pointing to a bigger rebound from last year's shallow recession than economists had been expecting.
Overall optimism across the euro zone remained strong and firms increased headcount at the fastest pace since June last year. The composite employment index rose to 51.8 from 50.9.