PMI shows May reduction in business growth across Eurozone due to factory struggles.

A recent survey of business activity in the euro zone showed that overall price pressures have eased. The final Composite Purchasing Managers Index (PMI), compiled by S&P Global and considered an excellent indicator of the overall economic health, was 52.8 in May, down from 54.1 in April. While this is still above the 50 mark that separates growth from contraction, it is below the preliminary reading of 53.3.

However, after a slump in GDP in the October-March quarter, the zone has regained some footing and is showing positive expansion in the second quarter. This was confirmed by the new export business PMI, which includes tourism-related demand, sustaining near a series of May peaks.

The PMI for the services sector, which is underpinned by a strong labor market, rising wages, and a thriving tourism sector across Europe, fell to 55.1 from April. It was 56.2, the highest in a year, but below the preliminary figure of 55.9. Despite this, demand for services continued to grow and companies increased headcount, albeit at a slower pace. The employment index fell to 54.6 from April’s 11-month high of 55.6.

The manufacturing PMI results from last week showed weak demand and a deepening slowdown in factory activity despite falling prices. The production index fell to 56.4 from 56.8, the lowest level since April 2021. Nonetheless, overall cost pressure eased in May, with both the headline input price index and the output price index falling. This is largely due to factories driving prices down as service firms, which would be welcomed by policy makers at the European Central Bank who have yet to meet their inflation target.

In summary, the euro zone economy is showing positive expansion in the second quarter, with the services sector underpinned by a strong labor market, rising wages, and a thriving tourism sector across Europe. While demand for services continues to grow, companies are increasing headcount at a slower pace. Overall cost pressures have eased, with both the input and output price indices falling.