The May Flash PMI reinforced the picture of subdued growth of eurozone economic activity, with few signs of any imminent improvement. The Markit Flash Eurozone PMI – which is based on approximately 85-90% of normal final monthly replies – slipped to a 16-month low of 52.9 in May, down from 53.0 in April. With the PMI having averaged 53.2 in the opening quarter, the latest two months’ weak data suggest that economic growth has likely slowed in the second quarter. The PMI is signalling lacklustre GDP growth of only 0.3% in the second quarter.

With new business growth also sliding to the lowest since January 2015, the survey data point to a strong likelihood of output growth remaining subdued or even weakening further in June.

The rate of business activity expansion in the dominant service sector was unchanged for a third successive month, but the sector reported the smallest rise in new business since January 2015 despite many firms continuing to offer price reductions to boost sales. Expectations about future business activity also dipped to a ten-month low.

The rate of manufacturing output growth was meanwhile the second-weakest since February 2015. Growth of new orders received by factories also eased. Producers reported that domestic market conditions remained tough and softer international trade flows led to the smallest rise in new export business for 16 months.

Slightly better news was provided on the labour market. Eurozone employment rose for the nineteenth month running in May, led by services though factories also reported a modest rise in headcounts. The overall rise in employment was the largest since February.

Price gauges also ticked higher. Input costs rose at the fastest pace since July 2015 as a substantial increase at service providers (driven to a large extent by rising wages and oil prices) offset a further reduction in manufacturing. The decline in manufacturers’ purchasing costs was nonetheless the slowest in nine months, representing a further firming of some commodity prices (notably oil).

Although average selling prices continued to fall in May, the rate of decrease was the lowest in the year-to-date. Manufacturers and service providers again both typically reported that price discounts were offered to win sales in response to softer market conditions.

Growth in Germany continued to strengthen across both manufacturing and services in May, with the overall pace of expansion reaching its highest since the end of last year. France also continued its shift out of stagnation, with economic output rising at the fastest pace for seven months (but still below the euro area average), as faster services growth offset an ongoing manufacturing decline.

However, the accelerations in France and Germany were offset by a further cooling of the rate of expansion outside of the big-two nations to a 17- month low.