Eurozone business activity shrinks further in May

BRUSSELS

Business activity in the eurozone contracted further in May, weighed down by weak demand caused by the Middle East war, a key survey showed Thursday.

The eurozone purchasing managers' index (PMI) published by S&P Global, an important gauge of the economy's overall health, registered a reading of 47.5 — a 31-month low — after 48.8 in April.

A reading above 50 indicates growth while a figure below 50 signals contraction.

There were "sharper falls in output, new orders and employment were recorded, while business confidence slipped lower", according to the survey.

"May's flash PMI survey data show the eurozone economy taking an increasingly severe toll from the war in the Middle East," S&P chief business economist Chris Williamson said in a note.

"The rise in the survey's price gauges already hints at inflation running close to four percent in the coming months which, combined with the growing signs of the region slipping into an economic downturn, creates a deepening dilemma for policymakers," he added.

Inflation leapt to three percent in April, significantly higher than the European Central Bank's two percent target.

Both Germany and France — the 21-country single currency area's two biggest economies — posted contractions in business activity.

France recorded its biggest drop in 5.5 years while Germany registered a contraction in May, albeit at a slower pace than in April.

The European Commission will later Thursday publish its latest forecasts for economic growth and inflation in both the European Union as a whole and the eurozone.