According to a study by S&P Global, manufacturing activity in the 20 countries that use the euro has shrunk at its fastest rate since the Covid-19 pandemic, amid a growing gap in global demand for goods and Services.
Released on Tuesday, the report showed the Purchasing Managers’ Index (PMI) for the manufacturing sector fell to 44.6 in May from 45.8 in April, and still below the 50 mark separating growth of contraction. A similar services gauge fell to a two-month low, although its reading of 55.9 still signals robust expansion.
Services’ outperformance against manufacturing was the largest since January 2009, the data showed.
The expansion in growth in May was led by the euro zone’s largest economy, Germany, where output grew at the fastest pace in 13 months, although confined to services. According to S&P, the biggest expansion in service sector output since August 2021 was countered by the biggest drop in German goods production in six months.
France, the euro zone’s second-largest economy, saw its growth fall to its lowest level in the current four-month expansion period, with weakened growth in the services sector accompanied by a further sharp decline in the production of goods.
While the rest of the region as a whole recorded growth for the fifth consecutive month, the expansion hit its lowest level since February due to slowing growth in services and an increasingly steep fall of manufacturing output, according to the study.
“GDP should have increased in the second quarter thanks to the good health of the service sector”, Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said in a statement. “However, the manufacturing sector is a powerful drag on the dynamics of the economy as a whole. German companies in this sector are particularly hard on the brakes,” he added.
According to the economist, the European Central Bank (ECB) will “to have a headache” with the PMI price data because selling prices in the services sector actually rose more than the previous month. “It is precisely the price development in this sector that the ECB is watching with a cautious eye”, de la Rubia explained, adding the “The upward movement that can still be seen here is preventing the central bank from pausing interest rates.”
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