A360
Key Takeaways✦ Atlas AI
01
Euro zone PMI hit 47.5 in May.
02
Services activity contracted sharply.
03
Input price inflation reached 3.5-year high.
Atlas AI
Economic activity across the euro zone contracted in May at its fastest rate in over two-and-a-half years, driven by a surge in living costs and declining demand for services. The S&P Global Flash Euro Zone Composite Purchasing Managers' Index (PMI) decreased to 47.5 in May from 48.8 in April, marking its lowest point since October 2023 and the second consecutive month of contraction. This decline was below forecast for no change.
The contraction was primarily fueled by a sharp deterioration in demand for services, with the Flash Services PMI falling to 46.4 from 47.6 in April, indicating the sharpest contraction since February 2021. New orders across the private sector experienced their fastest decline in 18 months, and new export orders saw their steepest drop since January 2025. Manufacturing activity also declined, with the manufacturing PMI falling to 51.4 from 52.2.
Cost pressures intensified significantly
Cost pressures intensified significantly, with input price inflation accelerating to a three-and-a-half-year high. Prices charged to customers also rose at their fastest pace in 38 months, suggesting inflation could remain near 4% in the coming months.
In response to persistent inflation, the European Central Bank (ECB) is expected to consider a 25 basis point interest rate hike in June, despite leaving rates unchanged in April. The labor market also deteriorated, with euro zone companies reducing headcount for the fifth consecutive month, marking the steepest job losses since November 2020.
