04-Jun-2025 13:49

The eurozone economy eked out another expansion in May, although the pace of growth slowed again. Business activity was restrained by continued weakness in demand for goods and services, limiting employment gains and pushing firms to continue running down backlogs of work.

While business confidence ticked higher, it remained relatively subdued. Eurozone inflation meanwhile cooled, although this was in large part due to falling costs and charges in the manufacturing sector.

The seasonally adjusted HCOB Eurozone Composite PMI Output Index fell to 50.2 in May, from 50.4 in April. Although this marked a fifth successive monthly reading above the 50.0 level and therefore in expansion territory, it pointed to an upturn that was only fractional overall and the softest since February.

Manufacturing was the eurozone's primary engine for growth as services activity decreased in May for the first time since last November.

The HCOB Eurozone Services PMI Business Activity Index fell below the 50.0 mark in May for the first time since last November, signalling a renewed downturn in output.

Dropping from 50.1 in April to 49.7, the index pointed to a marginal contraction in services activity midway through the second quarter. New business continued to decline, stretching the current sequence of decrease to four months.

The deterioration in demand for services was the most pronounced in six months, albeit modest. A sharper drop in international orders was partly to blame, with export sales also falling to the quickest degree since November last year.

Outstanding business volumes were depleted for a thirteenth successive month in May. This was facilitated to some degree by greater workforce numbers, with services employment rising again. The rate of job creation was the slowest for three months, however.

Muted hiring activity came amid another month of subdued business confidence. Although future output expectations strengthened, they remained weak by historical standards.

There was little movement on the inflation front, with rates of input cost and output charge inflation holding fairly close to those seen in April and remaining above the respective survey averages.

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