Eurozone Business Activity Stagnates As Trade Woes Hit Services
Michelle(April 23): Private-sector activity in the euro area barely grew in April as tariff uncertainty sent confidence in the services industry to an almost five-year low.
(April 23): Private-sector activity in the euro area barely grew in April as tariff uncertainty sent confidence in the services industry to an almost five-year low.
The Composite Purchasing Managers’ Index by S&P Global fell to 50.1 from 50.9 in March, remaining narrowly above the 50 threshold separating expansion from contraction, data Wednesday showed. Analysts had predicted a drop to 50.2.
The deterioration was largely down to Germany, whose own main PMI gauge unexpectedly declined to less than 50 for the first time in four months. France also missed analyst estimates, remaining stuck beneath that level. Both of Europe’s two biggest economies saw surprise weakness in services.
“This has pushed the whole economy into stagnation territory,” Cyrus de la Rubia, an economist at Hamburg Commercial Bank, said in a statement. “A faster drop in new business suggests this weakness might stick around for a while. However, the higher fiscal spending on infrastructure in Germany and defence spending across Europe should eventually benefit not just manufacturing but also the service sector, though with a bit of a lag.”
Optimism over higher public spending, particularly in Germany, has given way to fears that President Donald Trump’s tariffs will erase the already meagre growth analysts had been predicting for the region’s economy this year.
Projections published Tuesday by the International Monetary Fund painted a gloomier picture for Europe, downgrading expansion in the euro zone’s 20-nation economy to just 0.8% this year from 1% before. For Germany, the revision was even steeper, with the Washington-based lender now foreseeing an unprecedented third straight year without growth.
Concerns about the economy’s prospects were clear when the European Central Bank met last week and cut interest rates for the seventh time since June 2024, having only weeks ago been considering a pause. Investors reckon it will have to take further action to protect growth and ensure inflation doesn’t drop below 2%, pricing two or three more moves.
Consumer-price growth currently appears to be heading back to 2%, with President Christine Lagarde saying Tuesday that the ECB’s task of returning inflation to that level is “nearing completion”.
Policymakers are getting “some mild support” for their rate-cutting stance from price indicators in the closely watched services sector, according to de la Rubia.
“Costs have risen at a similar rate to March, but the increase in selling prices has slowed significantly,” he said. “Goods prices are showing mixed behaviour: input prices have reversed their inflationary trend of the past four months and have fallen, while output prices have increased a bit more than in March but still modestly.”
PMIs are closely watched by markets as they arrive early in the month and are good at revealing trends and turning points in an economy. A measure of breadth of changes in output rather than depth, business surveys can sometimes be difficult to map directly to quarterly GDP.
Elsewhere, the UK and US composite PMIs are also expected to dip while remaining above the 50 mark.
