Eurozone services sector shows signs of recovery as inflation pressures ease

Friday 03 July 2026 - 08:20

By: Sahili Aya

Eurozone services sector shows signs of recovery as inflation pressures ease

The eurozone's services sector remained in contraction in June, but the pace of decline slowed significantly as inflationary pressures eased at a record rate, helping stabilize business activity across the currency bloc.

According to the latest S&P Global Purchasing Managers' Index (PMI) survey, the final eurozone Services PMI rose to 49.4 in June from 47.7 in May, indicating that although activity continued to contract, conditions improved markedly.

Services downturn moderates

While the services PMI remained below the 50-point threshold that separates expansion from contraction, the higher reading suggests the sector is gradually recovering after a difficult spring.

The improvement contributed to a broader strengthening of business conditions across the euro area, with the Composite PMI returning to expansion territory after two consecutive months of contraction.

The latest figures point to increasing resilience in the region's economy despite ongoing global uncertainties.

Inflation pressures fall sharply

One of the survey's most significant findings was the rapid decline in cost pressures.

Businesses reported the sharpest reduction in input cost inflation ever recorded outside the COVID-19 pandemic period, reflecting a substantial easing in operating expenses.

The moderation in costs is expected to reduce pressure on companies to raise prices, potentially supporting consumer demand and improving business profitability.

Lower energy concerns support confidence

The easing in inflation was accompanied by improving conditions in global energy markets.

Oil prices declined for a third consecutive day as concerns over potential supply disruptions eased following indications of progress in discussions involving Iran, the United States and the Strait of Hormuz.

Lower energy costs have helped ease inflationary pressures across the eurozone, providing additional support for businesses operating in the services sector.

Broader economy stabilizes

The return of the Composite PMI to growth territory suggests that the euro area's overall private-sector economy is beginning to stabilize after recent weakness.

Although challenges remain, particularly in services, the combination of easing inflation, lower input costs and improving business activity offers cautious optimism for economic performance during the second half of the year.