Financial News: Eurozone Private Sector Continues To Shrink

Eurozone Private Sector Continues To Shrink

(RTTNews) - The euro area private sector logged back-to-back contractions in May, marking its biggest fall in 18 months, final survey data from S&P Global showed Wednesday.

The final composite output index dropped to 48.5 in May from 48.8 in April. A score below the threshold 50.0 indicates contraction. However, the score was above the flash estimate of 47.5. Overall activity levels in the private sector were pulled lower by services, as manufacturing production rose further. The services Purchasing Managers' Index posted 47.7, slightly up from 47.6 a month ago. The flash reading was 46.4.

"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," S&P Global Market Intelligence Chief Business Economist Chris Williamson said.

"The PMI data are indicating a 0.2% quarterly GDP decline barring any significant change in June," Williamson added.

Price pressures intensified due to the conflict in the Middle East. Input cost pressures remained the sharpest seen since late-2022 and output price inflation quickened.

". 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," said Williamson.

Total new business declined for the third straight month. New business received from abroad was a more pronounced drag on sales activity. The rate of job shedding was the biggest in five-and-a-half years.

There was a modest recovery of business confidence as expectations improved from April's recent low.

The survey showed that the private sector downturn was again driven by the two largest economies of the bloc - Germany and France. Meanwhile, Spain and Italy registered expansions in private sector activity.

Germany's private sector shrank for the second straight month in May. The final composite output index climbed more than initially estimated to 48.8 from 48.4 in the previous month. The flash reading was 48.6. The services PMI registered 48.1, up from 46.9 in April and the initial score of 47.8.

France's private sector logged its steepest fall since January 2024. The final composite PMI fell to a 28-month low of 44.9 from 47.6 in the previous month but remained above the initial score of 43.5. The services PMI fell to 44.3 in May from 46.5 in April. The headline measure posted its lowest reading in five-and-a-half years. The flash services PMI score was 42.9.

Italy's private sector expanded moderately in May. At 50.4, the composite output index was down from 50.5 in April. There was a steeper fall in services activity, while manufacturing output reported faster growth. The services PMI dropped to 49.4 in May from 49.8 in the prior month.

Spain's private sector returned to growth in May. The composite index posted 50.2 compared to 48.7 a month ago. The services PMI advanced to 50.1 from 47.9 in April.

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