Eurozone economic activity slows further in May – PMI

The data released on Thursday added to darkened economic picture of the Eurozone, as economic activity contracted at the fastest pace in nearly three years in May, on prolonged impact from the war (Ukraine and the Middle East) that continues to lift cost of living and hurts demand for services.

Bloc’s flash Composite Purchasing Managers’ Index, which tracks the activity in both, manufacturing and services sectors, fell to 47.5 in May (the lowest since October 2023) from 48.8 in April and identical forecasted value.

Services PMI fell to 46.4 in May from 47.6 in April and well below 47.7 consensus, signalling that activity in the services sector, the dominant driver of the euro zone economy and a key gauge of consumer demand, contracted at the sharpest pace in over five years.

Manufacturing sector showed some resilience as PMI remained above 50 threshold, which divides growth from contraction, although the index dropped to 51.4 in May from 52.2 previous month and disappointed forecasts.

May’s PMI data reflect severe impact from the war in the Middle East to the bloc’s economic performance and warning of prolonged pressure that may lead to economic contraction by 0.2% in the second quarter of 2026.

Deepening crisis has impacted other sectors of the economy, with significant weaking in the labor market on the steepest job losses in nearly six years and the largest drop since 2013 (excluding Covid pandemic period).

Disruption in energy supply that sparked a domino effect on the entire economy, has also fueled inflation, which currently holds at 3%, well above ECB’s 2% target, raising expectations for a rate hike in coming months.