Eurozone private sector unexpectedly contracted due to slump in services

Private sector activity in the eurozone economy surprisingly shrank in May, with the services sector performing at its worst in 16 months.

The composite purchasing managers index (PMI) by S&P Global fell from 50.4 in April to 49.5 in May, dropping below the 50 threshold that separates expansion from contraction.

The downturn in the EU economy is being driven by Germany and France. Germany's PMI fell below 50 due to a similar decline in its services sector. France's index has remained below this threshold for nine months.

In May, eurozone manufacturers performed better than services providers for the first time since the pandemic, thanks to efforts to overcome the impact of US tariffs. Companies increased production for the third consecutive month, and new orders did not decline for the first time since April 2022.

The region could receive a boost next month if the European Central Bank cuts its deposit rate to 2% for the eighth time this cycle.

Head of the Belgian central bank Pierre Wunsch said the economy may need support to sustain its recovery and ensure that inflation, currently standing at 2.2%, does not dip below the target of 2%.