Eurozone business activity faltered in May 2025, marking the first contraction in five months as the composite PMI dropped to 49.5 from 50.4, a six-month low. The services sector led the downturn, where output declined at the fastest pace since January 2023 (48.9 from 50.1), amid sustained weakness in new business and growing uncertainty. Meanwhile, manufacturing showed faint signs of stabilisation, with production rising for a third consecutive month and new orders ending a three-year declineunderscoring a tentative shift toward recovery (49.4 from 49.0).

Despite this, the overall demand environment remains fragile, with new orders across sectors falling for the twelfth month and export demand weakening. Employment plateaued, as job losses in manufacturing offset modest gains in services, particularly in Germany and France, which slipped into contraction territory.
Inflationary pressures eased, though unevenly. Manufacturing faced falling input and output prices, while service providers struggled with elevated cost pressures.

Business confidence dipped further, hitting a 19-month low, driven by pessimism in the service sector, where sentiment plunged to levels not seen since 2012 outside the pandemic. In contrast, manufacturers grew more optimistic, buoyed by improving order books and supply conditions, pointing to a potential rebalancing of the recovery narrative. This latest update takes the RPI to minus 1 and the RPI-P to minus 2, meaning that economic activities are within the expectations of the zone.

The consensus looks for the composite at 50.9 in the May flash versus 50.4 in the April final. Manufacturing expected at 49.4 in the May flash versus 49.0 in the April final. Services is expected at 50.5 versus 50.1 in the April final.

The flash Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of the manufacturing and service sectors of the economy. The flash data are released around ten days ahead of the final report and are typically based upon around 75-85 percent of the full survey sample. Results covering a range of variables including manufacturing output, employment, new orders, backlogs and prices are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs. The survey, produced by S&P Global uses a representative sample of around 5,000 manufacturing and services companies, the former including Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece and the latter Germany, France, Italy, Spain and the Republic of Ireland.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.