The key PMI index has plunged to a 36-month low, data shows

Manufacturing activity across the 20 countries that use the euro has declined at its fastest pace since the Covid-19 pandemic, amid a widening gap in global demand for goods and services, according to a study by S&P Global.

Published on Tuesday, the report showed that the Purchasing Managers' Index (PMI) for manufacturing dropped to 44.6 in May from 45.8 in April, and further below the 50-mark separating growth from contraction. A similar gauge of services fell to a two-month low, though its reading of 55.9 still signaled robust expansion.

The outperformance of services relative to manufacturing was the widest since January 2009, data showed.

Growth expansion in May was led by the Eurozone's largest economy, Germany, where output grew at the sharpest rate for 13 months, albeit confined to services. According to S&P, the biggest expansion of service sector output since August 2021 was countered by the sharpest fall in German goods production for six months.

France, the euro area's second-largest economy, saw growth slip to its lowest in the current four-month span of expansion, with weakened service sector growth accompanied by a further marked drop in goods production.

While the rest of the region as a whole reported growth for the fifth month in a row, expansion cooled to its lowest since February due to slower services growth and an increasingly steep fall in manufacturing output, the study found.

"GDP is likely to have grown in the second quarter thanks to the healthy state of the services 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 momentum of the economy as a whole. German companies from this sector are particularly hard on the brakes," he added.

According to the economist, the European Central Bank (ECB) will "have a headache" with the PMI price data because selling prices in the services sector actually rose more than in the previous month. "It is precisely price developments in this sector that the ECB is watching with a wary eye," de la Rubia explained, adding the "upward movement that can still be observed here is keeping the central bank from taking an interest rate pause."

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(RT.com)