• Prior 47.6
• Composite PMI 48.5 vs 47.5 prelim
• Prior 48.8

Despite the troubles in France, the overall Eurozone services economy managed to hold up in May. However, private sector business activity as a whole fell to an 18-month low and marked back-to-back months of contraction for the first time since the end of 2024.

Looking to the services sector, total new order inflows fell again for a third straight month. And while slowing from April, the pace of decline was nonetheless the second-sharpest since November 2024.

On the prices front, the latest data showed a further intensification of inflationary pressures across the region. Input costs rose at the sharpest rate in three-and-half years, while charge inflation hit a 38-month high. Trouble, trouble.

S&P Global notes that:

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

“Price pressures have meanwhile intensified to their most worrying for over three years, hinting at inflation potentially running close to 4% in the coming months.

“These price pressures will sit uncomfortably with the ECB, which will want to be seen as acting swiftly to prevent higher inflation from becoming entrenched. However, policymakers will also clearly be concerned that they could be hiking rates into a downturn, adding to recession risks.

“Hence, 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, not least as this softening of demand will itself constrain pricing power and wage growth.”

This article was written by Justin Low at investinglive.com.