Eurozone PMI Falls to a Two-and-a-Half Year Low Amidst Energy Crisis Gloom Over Economic Outlook

Preliminary data released by S&P Global on Thursday showed that the eurozone's Composite Purchasing Managers' Index (PMI) for May fell further from April's 48.8 to 47.5, hitting a 31-month low and remaining below the boom-or-bust line for the second consecutive month.

When looking at the industry breakdown, there is a clear divergence between the two major sectors. The manufacturing PMI initial value recorded 51.4, marking a three-month low, but still remaining in the expansion range supported by the effect of firms' early stocking up; however, the situation in the service industry is rapidly deteriorating, with the May service industry PMI initial value plummeting to 46.4, the lowest level in 63 months (over five years), and becoming the core factor dragging down the overall economy.

Adding insult to injury, inflationary pressures are also intensifying. The data indicates that both corporate input costs and output prices are rising at the fastest pace in over three years, with the risk of "stagflation" increasing.

French Economy Raises Red Flag

As the second-largest economy in the eurozone, the data from France is particularly concerning. The composite PMI for May plummeted from April's 47.6 to 43.5, marking a five-and-a-half-year low and remaining in the contraction range for the fifth consecutive month.

Joe Hayes, Chief Economist at S&P Global Market Intelligence, stated in a press release that this set of data is "very bad" and warned that the energy price shock triggered by the conflict in Iran "has significantly increased the risk of France falling into recession." He further pointed out that a comprehensive increase in price levels may further suppress demand, leading to a vicious cycle.

Germany Continues to Struggle Below the Boom-or-Bust Line

The eurozone's largest economy, Germany, also did not escape. The May composite PMI edged up slightly to 48.6, slightly higher than April's 48.4, but remained in the contraction range for the second consecutive month, with the momentum for recovery still fragile.

Overall, the core economies of the eurozone are under pressure, with geopolitical conflicts driving up energy costs and persistently high inflation stickiness, making the European Central Bank's policy trade-offs between growth and prices increasingly difficult.