Key facts
- Eurozone services PMI fell to 47.7 in May from 49.4 in April.
- This is the third consecutive month of contraction for the services sector.
- Total new order inflows declined for the third straight month.
- Input costs rose at the sharpest rate in three-and-a-half years.
- Charge inflation for services hit a 38-month high.
- The economy is likely to slip into contraction in Q2, with a potential 0.2% quarterly GDP decline.
The Eurozone services PMI fell to 47.7 in May, down from 49.4 in April, marking the third consecutive month of contraction. Total new order inflows declined for the third straight month, with the pace of decline being the second-sharpest since November 2024. Input costs rose at the sharpest rate in three-and-a-half years, and charge inflation hit a 38-month high. S&P Global noted that the economy is likely to slip into contraction in the second quarter, with a potential 0.2% quarterly GDP decline. Inflation could run close to 4% in the coming months, posing a challenge for the ECB, which must balance fighting inflation with concerns about hiking rates into a downturn. In Italy, the HCOB Italy Composite PMI registered 50.4 in May, a slight decrease from 50.5 in April, indicating a marginal slowdown in Italy's private sector expansion. The services PMI contracted for the third consecutive month, falling to 49.4 from 49.8 in April, while manufacturing output continued to expand. Service providers experienced the strongest cost pressures since early 2023, and new business returned to contraction. Eleanor Dennison, Economist at S&P Global Market Intelligence, noted that the services sector is struggling with external challenges and dampened demand, particularly from domestic customers, with the war in the Middle East seen as a significant factor impacting inflationary pressures. Employment growth remained steady, and business optimism for the year ahead showed tentative improvements. Separately, the France HCOB France Composite PMI for May was 44.9, an improvement from the previous figure of 47.6 and exceeding the forecast of 43.5. The overall Eurozone services economy managed to hold up in May, but private sector business activity as a whole fell to an 18-month low, marking back-to-back months of contraction for the first time since the end of 2024. Input costs rose at the sharpest rate in three-and-a-half years, while charge inflation hit a 38-month high. The HCOB Germany Composite PMI for May came in at 48.8, slightly above the forecast of 48.6 and showing an improvement from the previous month's figure of 48.4. The HCOB Eurozone Construction PMI for May was 43.7, an increase from 41.7 in April. France's HCOB France Construction PMI for May came in at 39.6, an increase from the previous reading of 38.1.