LONDON – Growth in business activity in the eurozone slowed this month but remained relatively strong despite consumer spending power and raw material shortages hampering expansion due to the crisis of life, a preliminary survey shows.
The S&P Global’s Flash Composite Purchasing Managers Index (PMI), released on Tuesday and seen as a good indicator for overall economic health, fell to 54.9 in May from 55.8 in April, lower than the 55.3 forecast in a Reuters survey.
Any reading above 50 indicates an increase.
“The small fall in the euro zone composite PMI in May indicates that activity is holding up better than we expected. But in the midst of high inflation, service rebounds are likely to go out of steam and new order drops look sick for the industry, ”said Jessica Hinds at Capital Economics.
May’s services PMI fell to 57.3 from 57.7, much lower than the 57.5 predicted in a Reuters poll, as rapidly rising prices alerted some consumers.
Growth in service demand is weak – the new business sub-index has fallen from 56.6 to 55.2 – but companies have increased headcounts faster than in April.
A sustainable return to services has helped boost business activity in Germany, Europe’s largest economy, although there are signs of rising prices, market uncertainty and supply problems have begun to put pressure on demand, a sister survey showed.
In France, the bloc’s second-largest economy, growth has slowed somewhat as inflationary pressures have reduced the Covid-19 restrictions.
The pace of the UK economy outside the eurozone and the European Union has slowed more than expected this month, adding to the worries of a recession as inflationary pressures mount, another study found.
A flash PMI covering the euro zone manufacturing industry fell to 55.5 from 54.5 this month, worse than the 54.9 predicted in a Reuters survey and the lowest since November 2020. But the output index, which feeds into the composite PMI, rose from 50.7 to 51.2. .
The new COVID-19 lockdown in China and the Russian invasion of Ukraine disrupted supply chains that were only recovering from the epidemic, increasing costs and restricting access to raw materials.
Eurozone production input and output prices have both remained high and factory managers are bearing the rising cost of materials to customers. The output price index only fell to a record high of 77.3 in April from 76.0.
Inflation in the eurozone was at a record 7.4% in April, official data showed last week, and a recent Reuters poll of economists predicted that the European Central Bank would raise its deposit rates in July.
Further losing momentum suggests that the future output index, which monitors next year’s expectations, has fallen from 60.5 to 59.6, the lowest since July 2020.
“The outlook for growth is clearly getting worse, but the current effects of high inflation and the war (in Ukraine) are still not shrinking, according to the survey,” said Bert Collison at ING.
(Reporting by Jonathan Cable; Editing by Katherine Evans and Susan Fenton)