Eurozone May final services PMI 49.7 vs 48.9 prelim

• Prior 50.1
• Composite PMI 50.2 vs 49.5 prelim
• Prior 50.4

The revisions see the euro area economy post a marginal growth in business activity in May. But in all honest evaluation, it pretty much points to the economy stalling with services sector growth also grinding to a halt. Weaker demand conditions are to blame, especially that seen in Germany while business confidence remains relatively subdued amid heightened uncertainty. HCOB notes that:

“The eurozone economy has grown for the fifth month in a row, but this interpretation requires a certain amount of goodwill,
as the overall index of 50.2 is only marginally above the expansion threshold and the pace of growth also slowed slightly in
May. This development is due to a slight decline in activity in the service sector, while manufacturing output showed the
same moderate growth as in the previous month. For the rest of the year, we are confident that further key interest rate cuts
by the European Central Bank and fiscal stimulus, particularly from Germany, will be sufficient to offset the negative effects
of higher tariffs and increased uncertainty.

“The European Central Bank will not be entirely satisfied with the PMI price data. In the services sector, which is closely
watched for inflation, the rate of increase in sales prices fell again. However, the situation has worsened somewhat with
regard to cost increases, which are already relatively high. This will probably not prevent the ECB from lowering key interest
rates again at its meeting on June 5, partly because goods prices have fallen slightly and at an accelerated pace.

“Southern Europe is ensuring that the service sector as a whole is spared a slump. Solid growth in this sector in Italy and the
weaker but still positive expansion rate in Spain are helping to offset the mild decline in activity in France and the relatively
sharp drop in Germany. If the southern European countries can maintain their momentum to some extent, while German
service providers begin to benefit from expansionary fiscal policy, a recovery in this sector is quite possible this year.
Confidence that this will happen has increased slightly, but is still not particularly strong by historical standards.”

This article was written by Justin Low at www.forexlive.com.