Eurozone business activity slumps

S&P Global’s flash purchasing managers’ survey on May 21 showed eurozone business activity falling to its weakest level since October 2023, as higher energy-linked costs and weaker demand hit the bloc’s private sector. The composite PMI fell to 47.5 in May from 48.8 in April, staying below the 50 mark that separates growth from contraction for a second straight month. Chris Williamson, chief business economist at S&P Global Market Intelligence, said the data showed the euro zone economy was taking “an increasingly severe toll” from the war in the Middle East. UN Trade and Development, or UNCTAD, has also warned that global merchandise trade growth could slow to between 1.5% and 2.5% in 2026, while the U.N. food agency has said disruption around the Strait of Hormuz could trigger a severe food-price crisis within six to 12 months. ### Why did the eurozone survey weaken so much in May? The May survey showed the sharpest contraction in eurozone private-sector output in more than two and a half years, with services weakening and demand deteriorating across the bloc. S&P Global’s flash composite reading of 47.5 was below both April’s 48.8 and market expectations for no change, according to Reuters-reported survey results. (rte.ie) Chris Williamson said the downturn reflected the economic hit from the Middle East war, with higher living costs weighing on customers and firms. Reuters said overall input-price inflation rose to its highest in three and a half years, adding to pressure on companies already facing softer orders. ### What does the PMI number actually say? (rte.ie) A reading below 50 signals contraction, and the eurozone’s 47.5 reading marked a 31-month low. Reuters said the survey pointed to a second consecutive month of shrinking activity across the bloc’s private sector. Manufacturing held up better than services. Market reports on the flash release said eurozone manufacturing PMI rose above 50 to 51.4 in May, while the services PMI fell to 48.9, indicating the broader weakness was concentrated in consumer- and business-facing services. (rte.ie) ### How does trade fit into the picture? (rte.ie) UNCTAD said this week that global merchandise trade growth could slow from 4.7% in 2025 to between 1.5% and 2.5% in 2026 as uncertainty and geopolitical tensions disrupt supply chains, shipping and investment decisions. In a separate news summary, Global Trade Review said UNCTAD now sees 1.5% as the lower end of that 2026 range. (fxstreet.com) UNCTAD also said global growth could slow to 2.6% in 2026 from 2.9% in 2025, driven by higher energy prices, transport disruptions, market volatility and a shift toward safe assets. Those channels matter for Europe because the eurozone is both trade-exposed and highly sensitive to imported energy costs. That last point is an inference from the trade and PMI data rather than a direct quote. (unctad.org) ### Why is the food warning part of the same story? The Food and Agriculture Organization said on May 20 that disruption through the Strait of Hormuz could become a “systemic agrifood shock” and that a severe global food price crisis could emerge within six to 12 months. FAO said one-third of the world’s seaborne fertilizer trade passes through the strait, making energy and shipping disruption a direct risk to farming costs and food supply chains. (gtreview.com) FAO said decisions taken now on fertilizer use, imports, financing and crop choices will determine whether that crisis materializes. Import-dependent countries would be especially exposed if higher fuel costs feed through to fertilizer, freight and food import bills at the same time demand is weakening elsewhere. The exposure of import-dependent countries is an inference drawn from FAO’s warning and UNCTAD’s trade outlook. (fao.org) ### What are officials and investors watching next? The European Commission was scheduled to publish updated growth and inflation forecasts later on May 21, after the PMI data pointed to a possible 0.2% contraction in eurozone output in the second quarter, according to Williamson. Investors will also watch whether energy disruption around the Strait of Hormuz eases, because both UNCTAD and FAO tied their warnings to shipping, fuel and input costs moving through that corridor. (fao.org) The next formal checkpoints are likely to come from final eurozone PMI readings in early June, updated European Commission forecasts, and any further FAO or UNCTAD assessments on trade and food markets tied to Hormuz disruption. (pmi.spglobal.com) (rte.ie)