By Indradip Ghosh

BENGALURU (Reuters) – Growth in euro zone business activity sped up in April, though less than initially indicated, as robust services more than offset a downturn in manufacturing, according to a survey that also showed inflation was at its lowest in over two years.

HCOB’s Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, climbed to an 11-month high of 54.1, below a preliminary reading of 54.4 but up from 53.7 in March.

April was the survey’s fourth straight month above the 50 mark that separates growth from contraction.

The PMI covering the bloc’s dominant services industry hit a one-year high of 56.2, up from March’s 55.0 but again lower than the 56.6 flash estimate.

“The services sector is in robust shape across the euro zone… Italy and Spain are currently the main driving forces,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

Although the bloc’s order backlog grew at a weaker pace, across all HCOB PMI indicators, “everything suggests that growth in the eurozone services sector will continue in the months ahead,” he added.

The new business index rose to 55.4 from 54.2, partly driven by recovering export demand that grew at its quickest rate since July 2021. Improving demand conditions also encouraged services firms to hire at their fastest rates since May 2022.

By contrast, a sister manufacturing sector survey on Tuesday showed factory activity in the bloc contracted for a 10th consecutive month.

Input costs increased at their weakest pace since Feb 2021 while the composite output prices index fell to a two-year low of 56.8, further supporting the case for a smaller interest hike by the European Central Bank at its policy meeting on Thursday.

Overall euro zone inflation has already eased in recent months, but with inflation still running well over three times the ECB’s target and economic activity remaining resilient, more rate hikes remain on the cards.

(Reporting by Indradip Ghosh; editing by John Stonestreet)