Eurozone PMI rises in May but still signals severe contraction

According to the report from IHS Markit, May saw a noticeable bounce in the Eurozone PMI Composite Output Index following April’s survey low. Posting 31.9, higher than the flash reading of 30.5 and up on April’s 13.6, the PMI posted its best level in three months. Nonetheless, by remaining well below the 50.0 nochange mark, the index was again consistent with sharply falling activity across the region as restrictions related to the coronavirus disease 2019 (COVID-19) pandemic continued to have a severe impact on economic performance. Both manufacturers and service providers endured further noticeable contractions in output although, in line with the headline composite figure, at much slower rates than April’s survey records. Country level data showed a broad-based improvement in respective composite PMI readings.

Albeit falling at a slower rate, levels of incoming new business continued to fall markedly during the latest survey period as lockdown restrictions designed to prevent the spread of COVID-19, whilst generally looser than in April, continued to severely hamper demand. 

There remained evidence of excess capacity across the region during May, with backlogs of work falling sharply and for the fifteenth successive month. A lack of new work meant companies were able to comfortably deal with current workloads and led in several cases to firms reducing their employment levels. 

Business  confidence remained negative overall, though continued to improve on March’s series low. Finally, latest prices data showed ongoing reductions in both operating costs and charges. Reduced employment expenses alongside lower prices for oil-related items led to a third successive monthly drop in input costs. The challenging business environment meant that service providers again reduced their own output charges markedly during May.

The IHS Markit Eurozone PMI Services Business Activity Index rose markedly from April’s record low of 12.0 to record a three-month high of 30.5. Despite the improvement, however, the index remained well below the 50.0 no-change mark and indicative of another considerable reduction in service sector activity.