Euro-Zone PMI Show Further Weakness In May - Sources

Euro-Zone PMI Show Further Weakness In May - Sources

LONDON (Dow Jones)--Activity in the euro-zone economy dropped to its weakest level in nearly five years in May, with the services sector leading the decline.

According to sources Friday, the preliminary estimate of the Purchasing Managers Index for the euro zone's services sector fell to 50.6 in May from 52.0 in April. The reading fell far short of market expectations, and hasn't been lower for four and a half years.

Manufacturing sector activity also slowed in May, registering a reading of 50.5, down from 50.7 in April.

The composite Purchasing Managers Index - a measure of private sector activity in the euro zone - dropped to its lowest level since July 2003, sliding to 51.1 in May from 51.9 a month earlier.

A level above 50 signals an expansion in activity, while a level below 50 signals a contraction.

The weaker-than-expected data will make gloomy reading for the European Central Bank, as it bodes ill for second-quarter gross domestic product growth.

That, combined with the high inflation rate in the currency bloc, puts the bank's rate setters in a bind.

The ECB has adopted a cautious approach to monetary policy, leaving the region's interest rate on hold at 4.0% and refusing to follow the U.S. Federal Reserve in cutting interest rates to stimulate economic growth.

The ECB is focused on the region's inflation rate, which remains well above its 2% target ceiling.

Final PMI measures, and national breakdowns, for the manufacturing and services PMIs will be released June 2 and June 4, respectively.

The euro-zone PMIs are based on data from Germany, France, Italy, Spain, Ireland, Austria, Greece and the Netherlands. It's compiled by NTC Economics.

-By Joe Parkinson and Emma Charlton, Dow Jones Newswires; +44-20-7842-9307;

(END) Dow Jones Newswires

May 23, 2008 04:36 ET (08:36 GMT)

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