Global PMI Roundup: Services Cool While Manufacturing Finds a Foothold—Growth Divergences Emerge Across Regions

Global flash PMI data for May revealed a mixed and increasingly nuanced economic landscape. While several manufacturing sectors showed early signs of stabilization or modest recovery, services—the key engine of post-pandemic growth—have begun to cool noticeably across major developed economies. As inflation patterns diverge and employment trends show early signs of hesitation, the PMI results may signal that global economic growth is entering a more fragile and fragmented phase, with regional divergence sharpening between Asia and Europe.

The Eurozone's flash Composite PMI fell to 49.5, marking a return to contraction territory and a five-month low. The culprit was a sharp drop in services activity, where the PMI slid to 48.9 from 50.1—the steepest monthly drop in 16 months and a miss versus the 50.4 consensus. Manufacturing offered a rare upside surprise, with the PMI ticking up to 49.4 from 49.0 and beating expectations. Germany mirrored this divergence: the Composite PMI dropped to 48.6, dragged by services collapsing to 47.2, their lowest in 30 months. In contrast, Germany's Manufacturing PMI climbed to 48.8, its highest in nearly three years, bolstered by stronger export orders. Across the bloc, inflation pressures diverged—factory prices continued to fall while service providers faced mounting wage-driven costs. Hiring flatlined across the region, and overall business confidence dipped to a 19-month low.

In the UK, similar themes played out. The Composite PMI fell to 52.8, down from 54.1, as the Services PMI retreated to 52.9 from 55.0 amid weaker consumer-facing demand and election-related uncertainty. However, the Manufacturing PMI in the UK posted a surprisingly strong improvement, rising to 51.3 from 49.1 and entering expansion territory for the first time in over a year. Still, the labor market flashed warning signs: manufacturing jobs were lost again, and while services hiring remained positive, momentum slowed. Inflation showed signs of easing—input cost inflation reached a seven-month low—but pass-through effects from wages remain a concern for policymakers. Overall, the UK's Q2 growth outlook is clouded by stagnating services and fading post-winter tailwinds.

Japan’s May PMI data revealed renewed vulnerability. The Composite PMI fell to 49.8 from April’s 51.2, pulling back into contraction for the second time in three months. Manufacturing remained weak, despite the headline PMI rising slightly to 49.0. The more telling metric—the Manufacturing Output Index—slipped to 48.0, signaling accelerating declines in production. Services barely held above water at 50.8, down sharply from 52.4. Total new orders fell for the first time in nearly a year, and foreign demand declined for the second consecutive month, likely reflecting regional trade and tariff uncertainties. Employment gains continued but slowed, especially in services. While input and output inflation rates softened to over-year lows, price levels remain elevated relative to historical norms, and business confidence remains among the lowest since the early pandemic.

In contrast, India stands out as a pillar of strength. The HSBC Flash Composite PMI surged to 61.2 in May, the strongest reading in over a year, driven by rapid expansions in both services (61.2) and manufacturing (58.3). Services saw their fastest output growth since March 2024, while manufacturing, though slightly off peak, remained firmly in expansion mode. New orders and exports surged to year highs, with both sectors benefiting from domestic demand strength and international appetite. Employment growth hit a record high for the survey, suggesting broad-based labor market momentum. However, inflation pressures are building. Input cost inflation hit a five-month high, and manufacturing firms reported their steepest rise in output charges in more than 11 years. Tariff uncertainty, regional tensions, and price competition remain risks, but India’s economic momentum appears largely unscathed.

Australia’s Composite PMI held at 52.6, indicating continued expansion but at a slower pace than April’s 53.0. The divergence between sectors was notable: the Services PMI climbed to 53.1, while the Manufacturing PMI slid to 49.6, marking its fifth consecutive month in contraction. Service providers benefited from resilient consumer demand, especially in hospitality, while manufacturers cited weak client pipelines and soft external demand. Employment trends remained solid, though slightly softer than in April. Input cost inflation was strongest in services, led by wages and utilities, while pricing power diminished slightly. Business confidence rose modestly, fueled by expectations for a rate cut later in the year, though tariff impacts and global trade uncertainty may complicate the path ahead.

Global Takeaways

Several key themes emerge from the May PMIs. First, manufacturing has begun to bottom out in several major economies, with Europe, the UK, and Japan showing relative improvement after extended slumps. Second, services activity is cooling, particularly in the Eurozone and Japan, where growth was previously driven by post-COVID demand normalization. Third, inflation pressures are diverging—falling in manufacturing due to commodity softness and destocking, while services inflation remains sticky due to labor costs. Fourth, employment momentum is weakening, especially in industry, and hiring in services—while still positive—is losing strength.

The most striking divergence is Asia’s relative strength vs. Europe's fragility. India remains in an expansionary class of its own, while Japan and Australia are muddling through. The Eurozone and UK are grappling with a loss of services momentum, raising the risk that recent economic resilience may falter in the second half of the year.

Looking ahead, the data may give cover to central banks like the ECB and BoE to cut rates, especially if services inflation continues to moderate. But for now, the world economy appears locked in a "two-speed" pattern—buoyant in South Asia, cautious in North Asia, and increasingly fragile in Europe. The upcoming U.S. PMI will provide a crucial missing piece to this global puzzle, especially as markets watch for signs of whether American exceptionalism will continue or begin to converge with the rest of the world.