LONDON (Reuters) -Euro zone business activity unexpectedly slipped back into contraction this month as the bloc’s dominant services industry suffered a deeper downturn in demand, although manufacturing showed further signs of stabilisation, a survey showed.
HCOB’s preliminary composite euro zone Purchasing Managers’ Index, compiled by S&P Global and seen as a good guide to growth, dropped to 49.5 this month from April’s 50.4.
May marks its first time below the 50 mark separating growth from contraction this year and confounded expectations in a Reuters poll for a rise to 50.7.
“The euro zone economy just cannot seem to find its footing. Since January, the overall PMI has shown only the slightest hint of growth and in May, the private sector actually slipped into contraction,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
The services PMI dropped to 48.9 from 50.1, its lowest reading since January 2024 and far short of the poll estimate for a rise to 50.3.
As demand fell again optimism among service firms about the year ahead waned further. The business expectations index sank to 54.0 from 55.1, its lowest reading in approaching three years.
But factories showed more signs of recovery with the manufacturing PMI rising to a near three-year high of 49.4 from 49.0, slightly ahead of the 49.3 poll forecast. An index measuring output, which feeds into the composite PMI held steady at April’s 51.5.
Some of the improvement in the headline number may have come from factories cutting their prices to support demand. The output prices index fell to a five-month low of 49.0 from 51.3.
“The recovery in manufacturing is broad-based, with encouraging signs coming out of both Germany and France. Further interest rate cuts could provide a boost, and lower oil prices compared to last year are also helping,” de la Rubia said.
The European Central Bank cut interest rates for the seventh time in a year last month and markets are currently pricing in another 25 basis point reduction to its deposit rate to 2.00% on June 5.
(Reporting by Jonathan Cable; Editing by Toby Chopra)
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