The euro zone economy continued to grow at a solid pace in May as recently eased pandemic-related restrictions supported a sustained rise in activity levels, S&P Global said on Friday.
The Eurozone Purchasing Managers Composite Index fell to a four-month low of 54.8 in May from 55.8 in April. While the headline measure was still indicative of economic growth in the eurozone, it also highlighted a loss of momentum.
The main driver of the expansion was again the euro area services sector, as continued supply-side disruptions, the war in Ukraine and weak demand for goods dampened growth in manufacturing output, said S&P Global. The Eurozone services PMI index came in at 56.1 in May. Although this is down from 57.7 in April, it is in line with strong growth in services activity in the euro zone.
“Strong demand for services helped maintain a robust pace of economic growth in May, suggesting that the eurozone is increasing an underlying rate equivalent to GDP growth of just over 0.5%,” said Chris Williamson, chief economist at S&P Global Market Intelligence.
Despite the resilience of the services sector, there was an overall loss of momentum within the sector in May, which led to output by private sector firms increasing at the slowest pace since January amid easing post-pandemic catch-up effects, growing uncertainty and rapid inflation, economists at S&P Global said.
The risks appear to be tilted to the downside for the coming months, according to Mr. Williamson. “The manufacturing sector remains worryingly constrained by supply shortages and businesses and households continue to face soaring costs.”
The short-term outlook for the euro area economy will therefore depend on the extent to which weakening pent-up demand can offset headwinds of geopolitical uncertainty in the context of the war in Ukraine, disruptions in the supply chain and the rising cost of living, with the latter likely exacerbated by tighter monetary conditions, Mr Williamson said.
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