By Paul Hannon 

Business activity in the eurozone slowed for the fourth straight month in May and more sharply than expected, a survey of manufacturers and service providers showed, a sign that economic growth has yet to rebound from a surprisingly weak showing in the first quarter.

The eurozone economy entered 2018 on a high, having recorded its fastest expansion in a decade during 2017 as it outpaced the U.S. for the second straight year. But official figures for the first three months of the year recorded a sharp slowdown, which economists have largely attributed to a combination of unusually cold weather, strikes in the eurozone's two largest members, and a severe flu outbreak in Germany.

Most economists had expected to see stronger growth during the rest of the year, but there are as yet few signs of a revival. Data firm IHS Markit Wednesday said its composite Purchasing Managers Index for the currency area-based on survey responses from 5,000 businesses-fell to 54.1 in May from 55.1 in April. A reading above 50.0 signals an expansion in activity. That was the lowest reading for 18 months, and a weaker outcome than the decline to 54.8 forecast by economists who were surveyed by The Wall Street Journal last week.

"It's...becoming increasingly evident that underlying growth momentum has slowed compared to late last year, especially in relation to exports, " said Chris Williamson, chief business economist at IHS Markit, who cautioned that businesses reported some disruption from an unusually high number of public holidays.

The continued weakness of business surveys suggests the first-quarter slowdown may not have been entirely due to passing headwinds, but instead to more long-lasting impediments. There are some signs that businesses are being hindered by a shortage of skilled workers, while worries about a possible trade conflict with the U.S. may have made some wary of signing off on new deals.

If sustained, a cooling of the eurozone's $10 trillion economy could impact other parts of the world, including the U.S. Its weakness in the first three months of the year was a major factor behind a slowdown in growth across the developed economies. The Organization for Economic Cooperation and Development Wednesday said economic output in its 35 members increased by just 0.5% in the first quarter, the third straight period in which a slowdown was recorded and the weakest expansion since the third quarter of 2016.

Uncertainty about the durability of first-quarter weaknesses are likely to have a bearing on the European Central Bank's next big decision, which concerns when and how to bring a bond-buying stimulus program known as quantitative easing to a conclusion. As 2018 began, ECB watchers expected policy makers to announce in June that the program would end in December, and possibly as early as September if growth and inflation proved strong enough. But many now believe the ECB will delay making that call until July, and that a September termination date is unlikely.

The surveys recorded a particularly sharp slowdown in France's services sector, which more than offset a pickup for that country's manufacturers. Activity slowed in both the German manufacturing and services sectors.

The surveys also suggest that activity is unlikely to rebound sharply over coming months, as new orders fell again in May and to their lowest level since October 2016.

There were few signs of the pickup in inflationary pressures long sought by the ECB. Businesses raised the prices they charge at the slowest pace since September 2017, citing weak demand. The annual rate of inflation fell to 1.2% in April from 1.3% in March, well below the central bank's target of just below 2%.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

May 23, 2018 06:42 ET (10:42 GMT)