Euro area economic activity falls at quickest pace in over two years in May

Services PMI 46.4 vs 47.7 expectedPrior 47.6Manufacturing PMI 51.4 vs 51.8 expectedPrior 52.2Composite PMI 47.5 vs 48.8 expectedPrior 48.6The fallout from the Middle East crisis intensifies as euro area business activity takes a big knock in May, no thanks to a hit to demand conditions and surging cost pressures. France was the most notable drag among the big names, as seen earlier here.As for the overall Eurozone readings above, the manufacturing print was a 3-month low while the services print was a 63-month low. Meanwhile, the composite print was a 31-month low. All in all, it points to near certainty that the euro area economy will contract in the second quarter of the year.New business in the services sector in particular was weak, registering the sharpest decline for a year-and-a-half. As for manufacturing conditions, the frontloading activity in March and April is fizzling out now and we’re starting to see output hampered as a result.On the price front, input cost inflation accelerated for the seventh
consecutive month in May – hitting a three-and-a-half year
high. Meanwhile, the average prices charged for goods and services
rose at the fastest pace in 38 months.And all of this comes as manufacturers
continue to report severe supply-chain disruptions. Of note, suppliers’ delivery times
lengthened markedly to the largest degree in just under
four years.S&P Global notes that:“May’s flash PMI survey data show the eurozone economy
taking an increasingly severe toll from the war in the Middle
East. 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. The survey data indicate that
the euro area economy looks set to contract by 0.2% in the
second quarter.
“Job losses are also starting to become worryingly widespread
as business confidence in any swift turnaround in the adverse
economic climate fades further.
“The service sector is being hit especially hard by the surge in
the cost of living created by the war, notably via the demandsapping impact of higher energy prices. While there has been
some support to manufacturing from precautionary stock
building, this boost is starting to fade, with demand for both
goods and services now in decline.
“The region’s supply shock from the war is also intensifying,
as indicated by increasingly widespread supply chain delays.
Supply shortages threaten not only to constrain growth in
the coming months but also have the potential to add further
upward pressure to inflation.
“The rise in the survey’s price gauges already hints at inflation
running close to 4% in the coming months which, combined
with the growing signs of the region slipping into an economic
downturn, creates a deepening dilemma for policymakers.”
This article was written by Justin Low at investinglive.com.

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