Mücahithan Avcıoğlu
21 May 2026•Update: 21 May 2026
Business activity in the eurozone contracted in May at its fastest pace in two and a half years, as the Iran war and rising energy costs weighed heavily on demand and intensified inflation pressures.
The HCOB Flash Eurozone Composite PMI Output Index, compiled by S&P Global, fell to 47.5 in May from 48.8 in April, remaining below the 50-point threshold that separates growth from contraction for a second consecutive month.
The reading came in weaker than market expectations, which had pointed to an unchanged level.
The downturn was driven mainly by a sharp decline in services activity, while manufacturing continued to show limited growth, partly supported by precautionary stock-building.
Among the bloc’s two largest economies, Germany’s composite PMI was broadly stable, while France’s reading dropped to its lowest level since 2020.
Price pressures also intensified, with input costs and output prices for goods and services rising at their fastest pace in more than three years.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said the increase in survey price gauges already pointed to inflation running close to 4% in the coming months.
He said this, combined with growing signs of an economic downturn, was creating a deepening dilemma for policymakers.
The eurozone economy has come under mounting pressure from higher energy prices and weaker sentiment triggered by the conflict in the Middle East.
The European Central Bank is expected to update its economic forecasts at its June 10-11 meeting, with markets watching whether policymakers will raise interest rates to counter renewed inflation pressure.
In March, ECB staff projected eurozone gross domestic product to grow 0.9% in 2026 and 1.3% in 2027, though officials have since said the region is moving between that baseline and a more adverse scenario tied to a prolonged war.
Williamson said the services sector was being hit particularly hard by the rise in living costs caused by the war, while temporary support for manufacturers from stock-building was already fading.
He also warned that increasingly widespread supply-chain delays could constrain growth and add further upward pressure to inflation in the coming months.
