Eurozone Business Activity Contracts to 2.5-Year Low
The HCOB Flash Eurozone Composite PMI Output Index, compiled by S&P Global, slid to 47.5 from 48.8 in April — marking a second straight month below the critical 50-point threshold that divides expansion from contraction, and falling short of analyst forecasts that had anticipated a flat reading.
Services activity led the deterioration, posting a sharp pullback, while manufacturing managed marginal growth, propped up in part by businesses building precautionary stockpiles. Within the bloc's two dominant economies, Germany's composite reading held broadly steady, whereas France's index tumbled to its weakest point since 2020.
Inflationary pressures mounted in tandem, with input and output prices for both goods and services climbing at their swiftest pace in over three years. Chris Williamson, chief business economist at S&P Global Market Intelligence, said the surge in price indicators already signalled a worrying trajectory.
"The increase in survey price gauges already pointed to inflation running close to 4% in the coming months," Williamson said.
He cautioned that this trend, layered atop growing evidence of an economic slowdown, was compounding headaches for policymakers. "Combined with growing signs of an economic downturn, was creating a deepening dilemma for policymakers," he added.
Elevated energy prices and deteriorating confidence — both fallout from the Middle East conflict — have increasingly squeezed the eurozone economy in recent months. All eyes are now turning to the European Central Bank's June 10–11 policy meeting, where updated economic forecasts could signal whether officials are prepared to raise interest rates to rein in resurgent inflation.
ECB staff projections from March had the eurozone economy expanding 0.9% in 2026 and 1.3% in 2027, though officials have since acknowledged the region is navigating a path between that baseline and a more severe scenario should the war drag on.
Williamson warned the services sector faced acute strain from war-driven living cost increases, even as the manufacturing buffer from stockpiling showed signs of running out. He further flagged that broadening supply-chain disruptions posed a dual threat — capping growth while simultaneously pushing prices higher in the months ahead.
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