Euro zone economic activity contracts at fastest pace in over two years, May PMI shows

S&P Global's flash composite PMI for the euro zone came in at 47.6 in May, below the previous month's 49.2 and consensus expectations of 48.5. Any reading below 50 signals contraction, and May's print is the steepest decline since March 2024.

Subcomponents fell sharply: the manufacturing PMI dropped to 43.1, an 18-month low, while services slid to 48.9, into contraction territory for the first time this year. Germany's private-sector activity hit a three-year low, and France, Spain and Italy all recorded falling new orders. According to the survey, 38% of executives have postponed capex decisions since the Iran war began.

After the release the euro softened to 1.066 against the dollar and the German 10-year bund yield fell 8 basis points to 2.28%. With ECB President Christine Lagarde describing inflation as 'reassuring' the day before, money markets now price more than a 70% probability of a 25-basis-point rate cut at the June meeting. ING economist Carsten Brzeski said 'the risk of three back-to-back quarters of contraction is real'.