Growth of business activity in the euro area economy accelerated to its fastest for just under three years in April, leading to a return to job creation across the region.

The Markit Eurozone PMI Composite Output Index rose from 53.1 in March to 54 in April, according to the flash estimate, which is based on around 85% of total survey replies. The latest reading was the highest since May 2011.

The PMI has now been above the 50 no-change level for ten consecutive months, signalling a continuous expansion of business activity since last July. With new orders also growing in April at the fastest rate seen since May 2011 and backlogs of work showing a small increase for  the  second consecutive  month, further growth of activity is likely in May.

The upturn was again led by goods producers, though also continued to be supported by rising activity in the services economy. Manufacturing output increased for a tenth straight month, showing the second-largest rise since April 2011 as growth accelerated for the second month running. Growth of manufacturing new orders eased slightly for a third straight month but remained robust, aided by a marginal uptick in growth of new export orders.

Services activity meanwhile increased for the ninth month running, growing at the fastest rate since June 2011. The increase was spurred by the largest rise in new business inflows seen over that period. 

With backlogs of work rising, albeit only modestly, firms took on more staff in order to expand capacity. The increase in employment was the largest since September 2011, and only the second since 2011. Rates of job creation in both the manufacturing and service sectors were nevertheless only modest as many firms continued to focus on keeping costs low to boost competitiveness. 

Input prices barely rose during the month, registering the smallest increase since June last year. Manufacturers' raw material prices fell at the fastest rate since last July, dropping for the third month running. A modest rise in service sector costs was meanwhile the smallest observed since February 2010. 

Output prices fell for the twenty-fifth month running, commonly linked to price cutting as firms sought to attract new business, especially in the service sector. A more modest decline was seen in manufacturing. The average drop in prices across both sectors was the largest since last August.

By country, the upturn continued to be led by Germany, which saw output growth accelerate to the second-fastest since mid-2011.

France meanwhile saw output increase for the second successive month, though the rate of increase slipped from March's 31-month high to register only a modest monthly improvement.  A marginal increase was seen in services while manufacturing output growth slowed. New orders stagnated after rising in March, causing French firms to once again cut back on their staffing levels. 

Outside of France and Germany, the rest of the region saw business activity expand at a rate not seen since February 2011. Growth accelerated in both manufacturing and services.

Employment rose, registering the first (albeit modest) increase since May 2011.

Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said, "The eurozone has started the second quarter on a solid footing. A welcome quickening in the pace of growth of business activity in April means the region is expanding at the fastest rate for almost three years. The PMI is signalling that GDP is on course to rise by 0.5% in the second quarter, building on a 0.4% rise in the first quarter." 

"The upturn continues to be led by Germany, where the economy looks to be growing at a quarterly rate of approximately 0.7%, while France is merely stabilizing. Perhaps the best news came from the rest of the region, where the fastest rate of growth seen since early-2011 suggests that the recovery in the periphery is gaining traction."

"The return to job creation across the region is also very encouraging news in respect of companies believing that the recovery has legs and is looking increasingly sustainable."

"The big concern will be the outlook for prices. With selling prices falling at the fastest pace since last August despite the upturn in activity, there will be growing fears that deflationary pressures are intensifying and that the ECB needs to respond with more than just words to the recent appreciation of the exchange rate."