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April 21 (Reuters) – The European zone’s economic recovery unexpectedly gathered pace this month, with the bloc’s core service industry already seeing rising demand, despite a deep slump in manufacturing, surveys showed.

The HCOB Flash Composite Purchasing Managers’ Index (PMI), compiled by S&P Global and seen as a good measure of overall economic health, rose to an 11-month high of 54.4 in April from 53.7 in March, data showed on Friday.

That was above the 50 mark, the highest forecast in a Reuters poll, which separates growth from contraction and was unchanged from March.

“The HCOB Purchasing Managers’ Indexes show a very friendly overall economic picture for the Eurozone,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

“However, a closer look reveals that growth has been very uneven. For example, the gap between a partially growing service sector on the one hand and a weakened manufacturing sector on the other is widening.”

To meet the growing demand, the number of companies has increased rapidly since last May. The employment index rose to 54.7 from 53.3 in April.

The PMI, which covers the services industry, rose to 56.6 this month from 55.0, confounding expectations for a decline to 54.5 in a Reuters poll.

Despite the high cost of living in the region, demand for services has improved as consumers continue to spend. The new business index rose from 54.2 a year ago to 55.8.

But it was a different story for block producers, who saw demand rapidly declining. The sector’s headline PMI fell to 45.5 from 47.3, the lowest since the coronavirus pandemic hit the world three years ago.

The index gauge, which feeds into the composite PMI and has spent two months in positive territory, fell from 50.4 to 48.5.

Still, further improvements in supply chains meant that raw material prices fell at their fastest pace in three years, so factories increased their payments slightly. The output price index fell from 53.4 to 51.8, the lowest since late 2020.

That was welcomed by policymakers at the European Central Bank, who are struggling to keep inflation close to their 2% target.

The ECB is expected to raise rates for the seventh straight meeting on May 4, with policymakers at a 25-basis-point hike not yet off the table, sources with direct knowledge of the discussions told Reuters.

Reporting by Jonathan Cable; Editing by Hugh Lawson

Our Standards: The Thomson Reuters Trust Principles.

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