Eurozone Economy Contracts Slightly as Middle East War Dampens Activity

The Eurozone economy has begun the new quarter on a subdued note, with a noticeable dip in economic activity, primarily driven by a sharp contraction in the services sector. The Purchasing Managers' Index (PMI) has fallen into contractionary territory, signaling a worrying trend that hasn't been seen since 2025. This downturn is particularly concerning given the resilience shown in the industrial sector, which continues its expansion, reaching a 47-month high. This divergence highlights the complex economic landscape, where manufacturing benefits from recovering orders and strategic pre-stockpiling due to fears of rising prices, while services struggle with dwindling demand. The ongoing geopolitical instability, particularly the conflict in the Middle East, is a significant drag, exacerbating price pressures, especially for energy commodities, which are crucial for the energy-intensive industrial sector. This situation is not only impacting current economic performance but also dampening future expectations, with managers' outlooks reaching their lowest point since late 2022. The ripple effects are evident even in Germany, our largest trading partner, which has seen its growth forecast significantly downgraded, underscoring the headwinds facing the entire region and Slovakia's economy.

“

The composite index thus suggests that the Eurozone economy slightly shrank at the beginning of the new quarter, mainly due to the war in the Middle East. This is the first time since 2025.