Eurozone PMI points to moderating economic expansion in May
Data released on Thursday reinforced the increasingly fragile outlook for the Eurozone economy, as business activity contracted at the fastest pace in nearly three years in May amid the prolonged economic fallout from the wars in Ukraine and the Middle East, which continue to drive up living costs and weaken demand, particularly across the services sector.
The bloc’s flash Composite Purchasing Managers’ Index (PMI), which measures activity in both the manufacturing and services sectors, declined to 47.5 in May from 48.8 in April, matching market expectations and marking the weakest reading since October 2023.
The services sector remained the main drag on economic performance, with the Services PMI falling to 46.4 in May from 47.6 previously and undershooting forecasts of 47.7. The latest reading points to the sharpest contraction in services activity in more than five years, highlighting weakening consumer demand across the region’s dominant economic sector.
Manufacturing activity showed relatively better resilience, with the Manufacturing PMI remaining above the key 50 threshold that separates growth from contraction. However, the index still eased to 51.4 in May from 52.2 in the previous month and came in below expectations.
The May PMI figures underscored the severe impact of the Middle East conflict on the Eurozone economy and intensified concerns that prolonged geopolitical tensions could push the bloc into a 0.2% economic contraction during the second quarter of 2026.
The worsening crisis has also spread into other parts of the economy, with the labor market showing significant deterioration. Employment levels recorded their steepest decline in nearly six years and the largest drop since 2013, excluding the pandemic period.
Meanwhile, disruptions in energy supplies continue to fuel inflationary pressures across the region, creating broader economic strain. Inflation currently remains near 3%, well above the European Central Bank’s 2% target, reinforcing expectations that policymakers may be forced to raise interest rates again in the coming months.
