The Euro area composite Purchasing Managers’ Index (PMI) declined further into contraction territory in May, signaling ongoing economic weakness in the region, according to Commerzbank’s Dr. Vincent Stamer [1]. The composite PMI dropped from 48.8 in April to 47.5 in May, marking the third consecutive month of decline and suggesting a weak second quarter for the Euro area economy [1].
Both the manufacturing and services sectors experienced deteriorating sentiment. The manufacturing PMI fell from 52.2 to 51.4, while the services PMI saw a sharper decline from 47.6 to 46.4, indicating a significant contraction in services activity [1]. The report highlights that the impact of the ongoing conflict in the Persian Gulf has been more pronounced in the services sector, while manufacturing has been less severely affected so far [1].
Rising input prices remain a concern, with the number of companies reporting increased input costs continuing to grow. The input price sub-component for manufacturing reached 80.1, the highest level since 2022 [1]. However, only a partial pass-through of these higher costs to selling prices has been observed, complicating the European Central Bank’s (ECB) efforts to balance inflation risks against already soft economic activity [1].
The report also notes that consumers have likely reduced spending in other areas due to rising energy prices, further weighing on the services sector [1].
CONCLUSION
The latest PMI data underscores mounting economic headwinds in the Euro area, with both manufacturing and services sectors weakening and input costs rising. This environment presents a significant challenge for the ECB as it navigates between inflation risks and sluggish growth.