The Eurozone's preliminary HCOB Composite PMI for May dropped to 47.5, missing expectations of 48.8 and falling further below the 50.0 threshold that separates expansion from contraction in business activity. This marks a significant deterioration, as the Composite PMI was expected to remain steady but instead contracted due to a slowdown in the manufacturing sector and continued weakness in services activity [1].
The Manufacturing PMI declined to 51.4 in May from 52.2 in April, underperforming the anticipated moderate slowdown to 51.9. Meanwhile, the Services PMI fell further to 46.4 from the previous reading of 47.6, indicating deepening contraction in the services sector [1].
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated, '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' [1].
In terms of market reaction, the Euro (EUR) saw a brief recovery during the release of the flash PMI data, with EUR/USD rebounding to near 1.1616 from an intraday low of 1.1595. However, this movement was attributed more to a sharp correction in the US Dollar (USD) rather than a positive response to the PMI data itself [1].
CONCLUSION
The latest Eurozone PMI data signals a deepening contraction in economic activity, with both manufacturing and services sectors underperforming expectations. Market sentiment remains negative, and the euro's brief recovery was driven by external factors rather than improved economic outlook. The data suggests the euro area economy is likely to contract further in the second quarter.