May European Manufacturing Growth Slowest Since Early 2021 By Investing.com

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© Reuters.

By Geoffrey Smith

Investing.com — The impact of inflation on the European economy is becoming ever more apparent, with fresh data published on Wednesday showing it hitting everything from consumer spending to manufacturing and house prices.

Manufacturing activity in Europe was at its slowest since early last year in May, according to business surveys published by S&P Global, while other numbers showed falling sharply in real terms and continuing to rise at an unsustainable pace.

S&P’s purchasing managers index for both the Eurozone and the fell to 54.6, as supply chain problems, skills shortages, and sharply rising energy prices all took their toll. For the Eurozone, the reading was the lowest since the end of 2020, while for the U.K., it was the lowest since February 2021. For the Eurozone, at least, the final figure was slightly better than the 54.4 originally reported.

“Euro area manufacturers continue to struggle against the headwinds of supply shortages, elevated inflationary pressures and weakening demand amid rising uncertainty about the economic outlook,” S&P economist Chris Wiliamson said. 

S&P said manufacturing orders in the Eurozone fell for the first time in two years, as business confidence wilted amid “steep cost pressures” across all sectors of the economy. Output, meanwhile, recovered only marginally from the 23-month low recorded in April. 

Earlier, Germany – Europe’s largest economy – had said fell in inflation-adjusted terms by 5.4% on the month, leaving them on the year. has accelerated further since March to stand at 7.9% in May, the highest in over 50 years. , meanwhile, surged to 8.1%.

The overshoot in inflation across the Eurozone has been an embarrassment for the European Central Bank, whose top leadership only last week effectively committed the bank to keeping its negative interest rate policy in place until September. Since Eurostat published its May CPI data, two members of the ECB’s governing council – Austria’s Robert Holzmann and Slovakia’s Peter Kazimir – have tried to reopen a debate on hiking by 50 basis points already at the ECB’s meeting in July.

In the U.K., S&P noted that trade obstacles due to Brexit had added further friction to activity, in addition to those faced by the Eurozone. New export orders declined for the eighth time in the past nine months, which companies responding to S&P’s survey attributed to Brexit difficulties and transportation delays, as well as shipping disruptions and the loss of orders due to the war in Ukraine.

Both the and the fell 0.1% against the dollar in response to the morning’s data dump.

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