Commerzbank’s Dr. Vincent Stamer notes that the Euro area composite PMI fell further into contraction territory in May, suggesting a weak second quarter for the economy. Both manufacturing and services sentiment deteriorated, with services notably weaker. Rising input prices and only partial pass-through to selling prices leave the ECB balancing inflation risks against already soft activity.

PMI slide highlights growth headwinds

"Business sentiment in the euro area has continued to deteriorate. Contrary to expectations, the Purchasing Managers’ Index (PMI) fell again in May, from 48.8 to 47.5. This marks the third consecutive month of decline for this indicator, driven by the ongoing conflict in the Persian Gulf."

"Meanwhile, sentiment has continued to deteriorate in both the manufacturing sector (from 52.2 to 51.4) and the services sector (from 47.6 to 46.4). However, the impact of the Iran conflict on manufacturing appears to be less severe so far than on the services sector."

"In contrast, the PMI for services points to a significant contraction in the sector. Consumers have likely cut back on spending elsewhere due to rising energy prices."

"The number of companies reporting rising input prices has continued to increase. As in the previous month, the sub-components for input prices rose in both the services sector and the manufacturing sector. In the manufacturing sector, it reached 80.1, the highest level since 2022."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)