Eurozone Economic Activity Falls at Fastest Rate Since 2023

(MENAFN) Business activity across the eurozone declined sharply in May, marking the fastest contraction in more than two years as economic conditions weakened under pressure from rising energy costs and global uncertainty.

According to reports, the HCOB Flash Eurozone Composite PMI Output Index, compiled by S&P Global, fell to 47.5 in May from 48.8 in April. The reading remained below the 50-point level that separates expansion from contraction for a second consecutive month and came in weaker than market forecasts.

The overall downturn was primarily driven by a steep decline in services sector activity, while manufacturing showed only limited resilience, partly supported by temporary stockpiling efforts from businesses preparing for potential supply disruptions.

Among major economies, Germany’s performance remained relatively stable, while France experienced a more pronounced slowdown, with activity falling to its weakest level in several years.

Inflationary pressures also strengthened during the period, with both input costs and output prices rising at the fastest rate seen in over three years. Analysts warned that these trends could signal inflation approaching around 4% in the coming months.

An economist cited in the report noted that the combination of rising prices and weakening growth is creating a difficult policy environment, where slowing economic activity coincides with persistent inflationary risks.

The broader eurozone economy continues to face strain from elevated energy prices and reduced business confidence linked to geopolitical instability in the Middle East. These factors have contributed to weaker demand conditions across multiple sectors.

Attention is now turning to upcoming policy meetings of the European Central Bank, where officials are expected to reassess growth and inflation forecasts. Markets are closely watching whether further monetary tightening will be considered in response to ongoing price pressures.

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