Eurozone manufacturing recovery hits a snag: Double blow of stagnant demand and supply chain delays brings down the PMI to 51.6.

Note that a survey released on Monday shows that due to stagnant demand for goods and supply chain disruptions caused by the Middle East war pushing input costs to the highest level in four years, the growth momentum of the Eurozone manufacturing sector in May has weakened. The S&P Global Eurozone Manufacturing Purchasing Managers' Index (PMI) fell from April's near four-year high of 52.2 to 51.6 in May, but was higher than the preliminary estimate of 51.4. A PMI reading above 50.0 indicates expansion in factory activity. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated, "Despite Eurozone manufacturers reporting a fourth consecutive month of expansion in activity in May, the industry is showing signs of struggling under the weight of rising prices and supply disruptions caused by the Middle East war." New orders stagnated in May, in sharp contrast to April. In April, demand, a key indicator of the industry's health, had the fastest growth in four years as consumers purchased ahead of schedule. The decline in export orders further exacerbated the overall demand contraction. Factory output continued to expand, but at the slowest pace since January, with the output index slipping from April's 52.3 to a four-month low of 51.3. Employment has been declining for three consecutive years. While manufacturers remain optimistic about the future for the next year, confidence levels are still below the long-term average. Driven by soaring energy and raw material prices, input costs recorded the fastest year-on-year increase since May 2022. Companies raised factory prices at the fastest pace in three and a half years to pass some of the burden onto customers. "Factories have had to pass higher costs on to customers, which will inevitably push up inflation in the coming months. However, high prices are denting demand, with order volumes in May stagnating after improving for three consecutive months," Williamson added. The worsening supply chain delays are at their most severe level since June 2022, bringing further upward pressure on costs. Decision-makers face a tough balancing act: while they want to curb the resurgent surge in inflation, soft demand implies that aggressive rate hikes carry risks. A survey of most economists in May showed that the European Central Bank will raise deposit rates this month and hike rates at least once more this year in an attempt to prevent energy price increases from translating into core inflation. It is expected that last month's inflation rate has risen further above the European Central Bank's target of 2%.