Eurozone business activity falls to 18-month low as price pressures intensify
Eurozone private sector activity fell to an 18-month low in May, marking a second consecutive month of contraction, as surging input costs and charge inflation hit a multi-year high.
Eurozone private sector business activity fell to an 18-month low in May, marking the second consecutive month of contraction for the first time since late 2024, as surging price pressures weighed on demand.
The latest purchasing managers' index (PMI) data showed that while the services sector held up relatively well, overall private sector output declined at a faster pace. New order inflows fell for a third straight month, with the pace of decline the second-sharpest since November 2024. On the price front, input costs rose at the fastest rate in three-and-a-half years, while output price inflation hit a 38-month high, signaling intensifying inflationary pressures across the region.
For interest rate traders, the combination of weakening growth and rising inflation presents a stagflationary backdrop that complicates European Central Bank policy expectations. The ECB faces a dilemma: persistent price pressures argue for continued tightening, but the deepening contraction in business activity raises recession risks. Markets will now focus on the upcoming ECB meeting and any forward guidance on the rate path. NowPrice's real-time rates quotes show the latest pricing of ECB rate expectations across maturities.
Looking ahead, traders will monitor the final PMI readings and the ECB's June policy decision for clues on how the central bank balances growth and inflation risks. Any shift in rhetoric could trigger significant moves in eurozone government bond yields and the euro.