Eurozone PMI Composite Falls to 31-Month Low, Signals -0.2% Q2 GDP Contraction

Eurozone business activity deteriorated further in May as the ongoing Middle East energy shock increasingly weighed on demand, confidence, and employment across the region. Flash Eurozone Composite PMI Output Index fell from 48.8 to 47.5, its lowest level in 31 months. Services PMI Business Activity Index dropped from 47.6 to 46.4, marking a 63-month low. Manufacturing activity also softened, with Manufacturing PMI easing from 52.2 to 51.4 and Manufacturing Output Index declining from 52.3 to 51.0.

According to S&P Global’s Chris Williamson, the latest survey data suggest the Eurozone economy is now on track to contract by around -0.2% in Q2. “Output has now contracted for two successive months, with the rate of decline accelerating in May to its highest for just over two-and-a-half years,” he said. The services sector was hit particularly hard as rising energy costs and broader cost-of-living pressures increasingly squeezed household demand. While manufacturing had previously found some support from precautionary stockpiling, Williamson noted that this boost is now beginning to fade as demand for both goods and services weakens.

The survey also highlighted growing stagflation risks for the region. Supply chain disruptions linked to the war are intensifying again, raising the risk of further shortages and additional inflation pressure in the months ahead. Williamson warned that the latest price gauges already point to inflation “running close to 4% in the coming months,” even as growth momentum deteriorates rapidly. The combination of slowing activity, rising job losses, and persistent inflation pressures is likely to deepen the policy dilemma facing the European Central Bank in the second half of the year.

Full Eurozone PMI flash release here.