The preliminary data of the PMI index of May show that the economic slowdown in the eurozone deepens. «The war in the Middle East is affecting more and more. Total activity has already contracted for the second consecutive month and the pace of decline accelerated in May to its highest level in just over two and a half years.» for monetary policymakers,» they add. Specifically, the ‘flash’ composite PMI index of total eurozone activity, seasonally adjusted, registered 47.5 in May, falling from its reading of 48.8 in April and falling below the no-change level of 50 for the second consecutive month. In fact, this latest reading signaled a solid monthly reduction in total activity, the sharpest since October 2023. THE CONCRIPTION FOCUSES ON SERVICES As they explain, the general contraction of total activity in the euro zone was again focused on the services sector, where commercial activity fell at the fastest rate since February 2021. For its part, manufacturing production continued to increase slightly, extending the current sequence of growth to five months. However, the pace of expansion was the slowest since January, since new orders received have decreased. The reduction in new orders received in the manufacturing sector led that sector to join the services sector in. contraction territory when it comes to new order intake. New orders received in the services sector fell sharply, leaving the private sector as a whole with the sharpest decline in the last year and a half. Similarly, new export orders (which include trade within the euro zone) fell at the fastest rate since January 2025. The decline in demand for services was mainly responsible for the decline in new orders from abroad, but the industrial sector recorded a contraction, after an increase in April. Due to the drop in new orders, companies reduced backlogs at the sharpest pace since the end of 2024. Industrial producers also reported serious disruptions to supply chains in May. Supplier delivery times lengthened sharply, the most in just under four years. Efforts to build safety stocks amid sharp increases in input prices and severe supply chain disruptions led euro zone producers to increase their purchasing activity for the third month. consecutive in May. However, difficulties in obtaining materials caused the continuation of the decline in raw materials stocks. Stocks of finished products also decreased. Eurozone companies continued to reduce their workforces in May, although modest, the decline in employment recorded in May was the fifth consecutive monthly and the sharpest since November 2020. In fact, excluding the COVID-19 pandemic, the job cuts were the most intense since August 2013. Employment fell solidly in May. the manufacturing sector, while service companies reported the first cuts to their workforces since the beginning of 2021. «Job losses are also beginning to become alarmingly widespread as business confidence in a possible rapid recovery in the current adverse economic environment fades further. The services sector is suffering especially intensely from the increase in the cost of living generated by the war, notably through the reduction in demand due to the rise in energy prices. Although the creation of safety stocks has supported the manufacturing sector to some extent, this momentum is beginning to reduce, as demand for both products and services is currently declining,» they comment on S&P Global Market Intelligence. «The repercussions of the war on the region’s supplies are also intensifying, as indicated by increasingly widespread delays in supply chains. Supply shortages not only threaten to limit growth in the coming months, but may also add additional upward pressure on inflation,» they note. INFLATION ACCELERATES AND BUSINESS SENTIMENT REDUCES The rate of input cost inflation accelerated for the seventh consecutive month in May, reaching a three-and-a-half-year high. At the same time, average prices charged for products and services rose at the fastest pace in thirty-eight months, but the rate of Inflation accelerated very little compared to that observed in April. Regarding the outlook, business sentiment regarding activity in the twelve-month period fell in May, falling to its lowest in thirty-two months. Service companies recorded their lowest level of confidence since September 2022, while sentiment in the manufacturing sector improved slightly. The renewed optimism observed in Germany contrasted with the first pessimistic result in the last year and a half recorded in France. Euro as a whole maintained their hopes that total activity will increase over the next twelve months, although sentiment fell to its lowest level in just over three and a half years.
