Eurozone business growth slowed in May but remained resilient -PMI

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LONDON – Business growth in the eurozone slowed this month but remained strong as consumer spending declined due to the life crisis while raw material shortages hampered expansion in production, a preliminary survey showed on Tuesday.

The S&P Global’s Flash Composite Purchasing Managers’ Index (PMI), seen as a good indicator for overall economic health, fell to 55.9 in April from 54.8 in May, well below the forecast of 55.3 in a Reuters survey.

Any reading above 50 indicates an increase.

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“The eurozone economy held strong resilient growth in May as a downturn in the manufacturing sector was offset by a booming service sector,” said Chris Williamson, chief business economist at S&P Global.

“While factories continue to report massive supply constraints and declining demand for products amid rising price pressures, the economy is being boosted by paint-up demand for services as epidemic-related restrictions are broken.”

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.

Demand for services has weakened – the new business sub-index has fallen from 56.6 to 55.2 – but companies have increased headcounts faster than in April.

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A flash PMI covering the 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, has risen 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.

Both manufacturing input and output prices remain high and factory managers bear 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 is suggested, with the future output index dropping from 60.5 to 59.6 in anticipation of next year, the lowest since July 2020.

“It remains to be seen how long the return of this service sector will last, especially given the rising cost of living, and the weakness of production as a concern, as factory discomfort is already showing signs of spreading to some parts of the service. Economy, “Williamson said.

(Reporting by Jonathan Cable; Editing by Katherine Evans)

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