The Eurozone’s composite PMI fell from 50.4 in April to 49.5 in May, with the services sector performance dropping to its worst level in 16 months. A slight improvement in manufacturing was offset by the decline in services. France’s economic activity has contracted for nine consecutive months, while services activity in both Germany and France declined.
The Eurozone economy unexpectedly contracted in May, with services performance reaching a 16-month low. The modest improvement in manufacturing was overshadowed by the downturn in services. On the 22nd, S&P Global’s Purchasing Managers’ Index (PMI) revealed that the Eurozone’s composite PMI dropped to 49.5 from 50.4 in April, below analysts’ forecast of 50.6. The preliminary services PMI stood at 48.9, lower than the expected 50.5 and the previous 50.1, while the manufacturing PMI was 49.4, slightly above the forecast of 49.2 but below the prior 49. France’s economic activity continued to shrink, with its composite PMI edging up slightly from 47.8 in April to 48, still well below the 50 threshold. Following the data release, money markets increased bets on the European Central Bank cutting rates twice more this year. The policy-sensitive German two-year bond yield fell by 3 basis points to 1.84%, and the euro extended its decline against the dollar, dropping 0.3% to $1.1296. The Eurozone’s private sector activity unexpectedly contracted in May, primarily dragged down by weak services performance. Cyrus de la Rubia, an economist at Hamburg Commercial Bank, noted, “The Eurozone economy appears to be struggling to gain traction.” He emphasized that while foreign demand for services slowed, domestic demand weakness was the main factor weighing on the sector. The services sector’s poor performance was a key driver of the overall PMI decline, signaling a tougher path to economic recovery. In May, the Eurozone’s manufacturing sector outperformed services for the first time since the pandemic began. De la Rubia suggested this might be linked to measures addressing U.S. trade tariffs, with lower oil prices also playing a role. Manufacturing output has expanded for three consecutive months, and new orders did not decline for the first time since April 2022. Despite the overall weak data, performance varied across Eurozone countries. France’s economic activity has now contracted for nine months, with its composite PMI barely rising from April’s 47.8 to 48. Germany, meanwhile, faces a services sector downturn.The index rose slightly to 48, still well below the 50 threshold. Jonas Feldhusen, an economist at Hamburg Commercial Bank, noted that these figures reflect the economic challenges France faces due to ‘domestic political instability and a fragile macroeconomic environment.’ France’s service sector activity also fell short of expectations, with businesses reporting weak demand, delayed orders, and hesitant customers. The overall business outlook for the next 12 months turned negative for the first time since November last year.
Germany’s PMI data was equally disappointing, with its service sector also declining. However, the new German government’s plans to push for infrastructure reforms and military rebuilding are expected to provide economic support in the coming years. Southern European countries like Spain performed relatively better. Ryanair Holdings Plc reported strong summer travel demand, attributed to people’s ‘reluctance to travel across the Atlantic.’ Risk Warning and Disclaimer: Markets involve risks; invest with caution. This article does not constitute personal investment advice and does not account for individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein suit their particular circumstances. Investments based on this are at the investor’s own risk.
