The HCOB Eurozone Composite PMI dropped to 49.5 in May 2025 from 50.4 in April, significantly missing market expectations of 50.7 and signaling the first contraction in private sector activity across the region this year, according to the preliminary flash estimate. This decline highlights mounting headwinds facing the eurozone economy amid rising trade tensions and subdued demand.
Eurozone private activity unexpectedly contracts
The contraction was broad-based, with services activity reversing course to fall to 48.9 from 50.1 in April, indicating a notable slowdown in a sector that typically drives economic growth in the region. Manufacturing output continued to decline as well, albeit at a slower pace—registering 49.4 compared to 49.0 the prior month—marking the softest contraction in nearly three years. This suggests that while factories remain under pressure, some stabilization may be emerging on the production side.
Firms reported a marked reduction in new orders during May, reflecting cautious client behavior amid escalating concerns over potential tariffs imposed by the US and reciprocal measures from the EU. Many businesses appeared to pull back on fresh commitments following a wave of front-loading orders in the previous month, as companies sought to mitigate the impact of expected trade disruptions. This pullback in demand weighed heavily on overall business activity and dampened optimism.
Job creation remains stable
Despite the drop in new business, job creation remained mostly stable, supported by lingering order backlogs that sustained demand for capacity and workforce. However, firms signaled a mixed picture on costs: manufacturing companies benefited from falling input prices, which eased cost pressures, whereas service providers faced sharply rising expenses, likely driven by wage inflation and higher operational costs.
Looking ahead, business confidence among eurozone companies fell sharply to a 19-month low, reflecting growing pessimism about the outlook amid geopolitical uncertainties, sluggish global growth, and ongoing trade disputes. This subdued sentiment raises concerns about the durability of the region’s economic expansion and could increase pressure on policymakers to deliver supportive fiscal and monetary measures in the coming months.
