Business activity in the eurozone contracted at its fastest rate in two and a half years, heightening market concerns that the war in Iran and the resulting surge in energy costs are severely impacting the regional economy.
The S&P Global Composite Purchasing Managers' Index for May fell to 47.5 from 48.8 in April, marking the second consecutive month below the 50-point threshold that separates expansion from contraction. Analysts surveyed by Bloomberg had anticipated the index would remain unchanged from the previous month.
While manufacturing saw growth again, benefiting from earlier inventory accumulation, the services sector experienced a significant decline. Concurrently, price pressures intensified, with input costs and the prices of goods and services rising at their fastest pace in over three years.
Additionally, business activity in France contracted at its quickest rate in five and a half years. The S&P Composite PMI for May dropped to 43.5 from 47.6 in April, remaining below the 50-point threshold for the fifth consecutive month. Analysts polled by Bloomberg had expected a slight increase in the index.
S&P noted that both the manufacturing and services sector indices for France declined. Businesses cited the war in Iran as driving up fuel and energy costs and triggering broader "economic anxiety."
Joe Hayes, Chief Economist at S&P Global Market Intelligence, stated in a press release on Thursday, "This shock has significantly heightened recession risks for the eurozone's second-largest economy," describing the figures as "very poor." He added, "Worryingly, a broad-based increase in the general price level across the economy risks further dampening demand."
Meanwhile, private sector activity in Germany contracted for the second month in a row.
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