LONDON (Reuters – Eurozone business growth slowed in this month, but remained strong due to the cost of living crisis. A shortage of raw material and a decrease in consumer spending power hampered expansion of manufacturing.

S&P Global (NYSE:)’s flash Composite Purchasing Managers’ Index (PMI), seen as a good guide to overall economic health, fell to 54.9 in May from 55.8 in April, lower than the 55.3 predicted in a Reuters poll.

Anything above 50 is considered growth.

“The euro zone economy retained encouragingly resilient growth in May, as a beleaguered manufacturing sector was offset by a buoyant service sector,” said Chris Williamson, chief business economist at S&P Global.

Although factories report continued supply shortages and decreased demand for goods, elevated prices pressures are boosting the economy. However, there is a lot of demand for services in excess as Pandemic-related restrictions are lifted.

As sharply rising costs kept consumers cautious, May’s PMI in services fell to 56.3 (from 57.7).

The demand for services declined – 55.2 was the new sub-index, down from 56.6. However, firms increased their headcount faster than usual in April.

Flash PMIs for manufacturing industries fell to 54.4 in November from 55.5. This is lower than the 54.9 forecasted by Reuters, and their lowest point since November 2020. However, the composite PMI’s output index rose from 50.7 to 51.2.

China’s new COVID-19 lockdowns, and Russia’s invasion in Ukraine, have resulted in disruptions to supply chains still recovering from the pandemic. They also sent prices soaring and restricted access to raw material.

Both manufacturing input and output prices remained high, and factories managers passed the rising costs to their customers. From April’s record-breaking 77.3, the index of output prices only fell to 76.0.

According to official data, inflation was at a new record 7.4% last week in the euro area. In addition, a recent Reuters poll showed that economists believe the European Central Bank (ECB) will increase its deposit rate for July.[ECILT/EU]

The future output index which tracks expectations for the next year, fell from 60.5 to 59.6 in July 2020, suggesting that more momentum may be lost.

Williamson explained that “it remains to see how long this recovery in the service sector can continue, especially considering the rising cost-of-living and the weakening of manufacturing. The factory malaise has already shown signs of spreading over into some parts the services economy.”