Eurozone May PMI falls below the boom-bust line, with Germany and France's "economic engines" both losing momentum

According to the Zhitong Finance APP, private sector activity in the Eurozone unexpectedly shrank in May, with the services sector recording its worst performance in 16 months. Data released by S&P Global on Thursday showed that the Eurozone Composite Purchasing Managers' Index (PMI) fell from 50.4 in April to 49.5 in May, dropping below the neutral line of 50. Analysts had previously expected the index to rise slightly to 50.6. Cyrus de la Rubia, an economist at Hamburg Commercial Bank, stated in a statement: "The Eurozone economy seems to consistently struggle to find its footing. While external demand for services is weakening, the main factor dragging down the sector appears to be weak domestic demand." Eurozone private sector shrank in May In the first few months of this year, the economy of the Eurozone's 20 countries performed robustly, exceeding expectations despite trade uncertainties suppressing business investment and household spending. However, growth in 2025 may be limited, with the European Commission forecasting GDP growth of 0.9% this week. The growth momentum mainly comes from countries outside the region's two major economies. Germany's PMI also surprised analysts by falling below 50 due to weak performance in the services sector. Meanwhile, France's PMI has remained below the neutral line for the ninth consecutive month. The long-standing weakness in manufacturing is part of the reason, although plans by the new German government to upgrade aging infrastructure and rebuild the military may provide support in the coming years. In May, the Eurozone's manufacturing performance surpassed that of the services sector for the first time since the pandemic. De la Rubia believes that efforts to avoid U.S. trade tariffs may be a reason for the strong performance in manufacturing, while falling oil prices may help sustain this trend. He stated: "Efforts to preemptively address these tariffs may partly explain why manufacturing has performed slightly better recently. Manufacturers have increased production for three consecutive months, and new orders have not declined for the first time since April 2022." Other countries, especially Southern European nations like Spain, performed better. Ryanair stated this week that travel demand remains strong this summer due to "weak transatlantic travel demand." Next month, the region may receive a boost, as analysts expect the European Central Bank to cut the deposit rate for the eighth time in this cycle to 2%. Whether further monetary easing will follow will depend on U.S. trade policy. European Central Bank officials will present several scenarios in the quarterly outlook to better understand potential outcomes. Belgian central bank governor Pierre Wunsch stated on Tuesday that the economy may need a "moderately accommodative" lending environment to ensure recovery and prevent the current inflation rate of 2.2% from falling below the 2% target. De la Rubia noted that the latest PMI consumer price data may present a mixed bag for the European Central Bank. He stated: "Inflation in service sector sales prices has slightly decreased from an already low level, but input costs are still rising and even accelerating. With energy prices falling, rising wages may be a major driving factor Nevertheless, the European Central Bank seems inclined to continue a cautious approach to interest rate cuts. PMIs are closely monitored by the market as they were released earlier this month and are adept at revealing economic trends and turning points. Business surveys measure the breadth of output changes rather than their depth, making it sometimes difficult to directly correlate with quarterly GDP. In other regions, the UK's composite PMI is expected to improve to 50, while the US's composite PMI is expected to drop to 50.3