INA–Follow up
A recent economic survey revealed on Thursday that economic activity in the Eurozone contracted at its fastest pace in over two and a half years during May.
This is attributed to a sharp rise in the cost of living caused by geopolitical tensions and wars, which led to a decline in demand for services and pushed overall input price inflation to its highest level in three and a half years.
A report by S&P Global, reviewed by the Iraqi News Agency (INA), stated that "the Eurozone's composite Purchasing Managers' Index (PMI) fell to 47.5 points in May, compared to 48.8 points in April, marking its lowest level since October 2023. This figure fell short of expectations, which had predicted a stable index, and represents the second consecutive month of contraction in the region's private sector (a reading below 50 points indicates an economic slowdown)."
Chris Williamson, chief economist at S&P Global Market Intelligence, said that "the preliminary Purchasing Managers' Index (PMI) data for May shows that the Eurozone economy is suffering increasing losses due to the war in the Middle East," explaining that "the survey data indicates that the Eurozone economy is poised to contract by 0.2 percent in the second quarter of this year."
Williamson added that "the services sector is being severely affected by the rising cost of living caused by the war, particularly through the impact of higher energy prices on demand levels," noting that "service activity contracted at its fastest pace since February 2021, with the preliminary services PMI falling to 46.4 points."
The report indicated that cost pressures have intensified, with the firm warning that price indicators point to inflation approaching 4 percent in the coming months, while official data showed inflation stabilizing at 3 percent in April, exceeding the European Central Bank's target of 2 percent, amid expectations that the bank will raise interest rates in June.
On the labor market front, the survey confirmed that "Eurozone companies reduced their workforce for the fifth consecutive month, registering the highest rate of job losses since November 2020, while business confidence fell to its lowest level in 32 months."
Similarly, data showed that private sector activity in Germany contracted for the second consecutive month in May due to the war. Despite a slight increase in Germany's preliminary composite Purchasing Managers' Index (PMI) to 48.6 points, exceeding expectations, it remained below the 50-point mark that indicates contraction.
Phil Smith, Associate Director for Economic Affairs at the firm, explained that "the German economy is heading towards contraction in the second quarter of the year due to a decline in the services sector and a stagnation in the manufacturing sector.
He added that the de facto closure of the Strait of Hormuz is extending to prices, accelerating input cost inflation as a result of higher energy prices, supply shortages, and consumer hesitancy.
In France, economic activity contracted at its fastest pace in five and a half years, with the composite PMI falling to 43.5 points in May. Chief economist Joe Hayes commented on the French situation, saying: "The inflationary impact of the oil price shock is intensifying, and there is a sharp decline in new private sector orders, significantly increasing the risk of recession for the Eurozone's second-largest economy."
