Eurozone business activity contracts at fastest pace in 18 months

(Alliance News) - Eurozone private sector activity contracted at the fastest pace in 18 months in May as demand weakened and inflationary pressures intensified, according to survey data released on Wednesday.

The S&P Global eurozone composite purchasing managers' index fell to 48.5 points in May from 48.8 in April, marking a second consecutive month below the 50-point threshold that separates growth from contraction.

The reading, however, came above the 47.5-point reading published on May 21.

The downturn was driven by the services sector, where the business activity index edged up to 47.7 points from 47.6 in April but remained firmly in contraction territory. Manufacturing output continued to expand, although at a slower pace than in the previous month.

Among the bloc's largest economies, Germany and France continued to weigh on overall performance, while Italy and Spain recorded marginal expansions in activity.

Inflationary pressures intensified. Input costs rose at the strongest pace since late 2022, while output prices increased for a third straight month at an accelerated rate.

S&P Global Market Intelligence Chief Business Economist Chris Williamson said the survey suggested the eurozone economy was at risk of contracting in the second quarter.

"With business activity in the eurozone falling for a second successive month in May, it is looking increasingly likely that the economy will slip into contraction in the second quarter," Williamson said.

"The PMI data are indicating a 0.2% quarterly GDP decline barring any significant change in June."

He added that rising price pressures could complicate the outlook for the European Central Bank.

"While one interest rate hike might be seen as an insurance policy, the case for further rate hikes will

be harder to make if the economy continues to weaken," Williamson said.

On Monday, the S&P Global eurozone manufacturing purchasing managers' index eased to 51.6 points in May from 52.2 in April.

The S&P Global eurozone composite PMI is compiled by S&P Global from responses to questionnaires sent to a panel of around 5,000 private sector companie, with survey data collected during the second half of each month.

By Eva Castanedo, Alliance News reporter

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