Private sector activity in the euro area contracted for the first time in 17 months in July as a result of the impact of high inflation on demand, according to the composite purchasing managers' index (PMI), which fell to 49.9 from 52 in the previous month.
The contraction at the start of the third quarter reflects the fall in activity in the manufacturing sector, with the PMI reading 49.8 points from 52.1 in June, at a 25-month low, while growth in the services sector slowed noticeably, with the PMI reading 51.2 points, down from 53 the previous month.
"The much-anticipated surge in consumer spending following the easing of pandemic restrictions is being thwarted as households are increasingly concerned about the rising cost of living, meaning discretionary spending is being diverted away from essentials such as food, supplies and loan repayments," said Chris Williamson, chief economist at S&P Global Market Intelligence.
He warned that business spending is being constrained by increased caution and risk aversion amid a "gloomier" economic outlook.
Among the major eurozone economies surveyed, Spain delivered the best composite PMI reading in July at 52.7 points, ahead of France at 51.7 points, as well as Germany at 48.1 points and Italy at 47.7.