Eurozone business activity shrinks in May - Services sector suffers decline, while manufacturing stabilizes
Business activity in the Eurozone contracted in May for the first time this year. One of the main factors behind the contraction was the services sector, which suffered a significant drop in demand.
Eurozone business activity contracted unexpectedly this month as the bloc's dominant services industry suffered a deeper slump in demand. However, manufacturing showed further signs of stabilisation, a survey showed.
The preliminary Eurozone HCOB Purchasing Managers' Index, compiled by S&P Global and seen as a good guide to growth, fell to 49.5 this month from 50.4 in April.
May marked the first time this year that the reading fell below the 50 level that separates growth from contraction. "The eurozone economy is simply not finding its balance," economists said. The services index fell to 48.9 from 50.1, the lowest reading since January 2024 and well below the survey's estimate of a rise to 50.3.
As demand fell again, optimism among service firms for the year ahead faded further. The business expectations index fell to 54.0 from 55.1. But factories showed more signs of recovery with output rising to a near three-year high of 49.4 from 49.0.
Some of the improvement may have come from factory price cuts to support demand. The producer price index fell to a five-month low of 49.0 from 51.3.
"The recovery in manufacturing is broad-based, with encouraging signs coming from both Germany and France. Further interest rate cuts could provide a boost, and lower oil prices compared to last year are also helping," the analysts explain.
The European Central Bank cut interest rates for the seventh time in a year last month and markets are currently predicting another 25 basis point cut in June.
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