Economic activity across the eurozone’s private sector weakened further in May, with survey data pointing to the sharpest contraction in a year and a half, according to the latest figures from S&P Global.
The Eurozone Composite PMI Output Index declined to 48.5 in May from 48.8 in April, remaining below the 50-point threshold that separates growth from contraction. The latest reading marked the second consecutive monthly decline and represented the first back-to-back contraction period since the closing months of 2024.
Services Sector Remains the Main Drag
The downturn was largely driven by continued weakness in services activity. The S&P Global Eurozone Services PMI Business Activity Index edged up slightly to 47.7 from 47.6 in April but remained firmly in contraction territory.
By contrast, manufacturing output continued to expand, although growth moderated compared with the previous month, limiting its ability to offset weakness elsewhere in the economy.
Germany and France, the euro area’s two largest economies, were the primary contributors to the overall decline. Meanwhile, Italy and Spain managed to record modest increases in private sector activity.
Demand Conditions Continue to Deteriorate
New business volumes contracted for a third consecutive month during May, highlighting ongoing challenges in demand across the region.
International demand remained particularly weak, with export orders posting their fastest decline of 2026 so far. New business from overseas customers fell at the quickest pace in five months, adding further pressure to overall activity levels.
The continued decline in orders suggests that businesses are facing a difficult operating environment despite some resilience in parts of the manufacturing sector.
Labour Market and Backlogs Show Signs of Strain
Employment trends also weakened during the month. Companies across the private sector reduced staffing levels at the fastest rate in five and a half years, reflecting softer demand and efforts to control costs.
At the same time, firms worked through outstanding orders at the quickest pace seen in 14 months, indicating a reduction in future workload pipelines.
These developments point to growing caution among businesses as economic conditions remain subdued.
Inflationary Pressures Intensify
Cost inflation accelerated again in May, with input prices rising at the strongest rate in three and a half years.
Businesses also increased the prices charged to customers at the fastest pace in 38 months, extending a trend of rising output price inflation that has now continued for three consecutive months.
The combination of slowing growth and strengthening price pressures may complicate the outlook for policymakers and businesses alike.
Confidence Improves Slightly but Remains Fragile
Business sentiment improved modestly from April’s recent lows, although confidence remained subdued by historical standards.
Expectations for future activity continued to lag behind levels seen before the outbreak of conflict in the Middle East, reflecting ongoing uncertainty surrounding economic and geopolitical conditions.
Commenting on the survey, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said the data points to a potential quarterly GDP decline of 0.2% unless conditions improve in June.
He also warned that price pressures “have meanwhile intensified to their most worrying for over three years, hinting at inflation potentially running close to 4% in the coming months.”
The survey was conducted between 12 and 26 May.
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