Eurozone stocks sank on Tuesday, undoing some of the bullish momentum built up over the past few weeks. In the meantime, manufacturing output has skyrocketed recently, reaching its highest rate in more than two years. Concerns over the services sector’s underlying strength persist. The September and October 2023 economic indicators reflect a contradictory outlook. Although many large companies are experiencing strong employment growth and rapidly increasing profits, business activity overall is near recession-like levels.
In April, the Eurozone’s Services Purchasing Managers’ Index (PMI) fell to 50.1, from March’s level of 51.0. This drop indicates a growth slowing trend in a key driver of growth in one of the economy’s essential sectors. Business expectations for the year ahead have fallen to the weakest point in almost two-and-a-half years. This significant decline is a cause for concern with respect to the economic direction of the eurozone.
Mixed Economic Indicators
Eurozone manufacturing experienced its strongest growth rate in over two years last month, adding to the steady flow of good news boosting hopes for economic recovery. All of this is exceedingly good news. Lurking beneath it is a hibernation in the all-important services sector, which accounts for nearly 80 percent of the eurozone economy. Dr. Cyrus de la Rubia, chief economist at the Kiel Institute, noted that “The most important sector, services, almost came to a standstill in April. Despite a surprising increase in manufacturing output, that was not enough to offset the overall decline in growth.”
Eurozone employment has risen for two straight months. New business orders – a harbinger of future activity – have declined for 11 straight months. This toxic mix is a recipe for eroding economic progress over the long haul. Germany’s DAX index was down 0.7%, while France’s CAC 40 was off by 0.5%. The Euro STOXX 50 index fell by 1%, as investors remained cautious given potential further deterioration in economic conditions.
Sector-Specific Performance
Danish wind turbine manufacturer Vestas jumped 4% after the company announced it had returned to the black in the first quarter. This robust performance is impressive even considering the negative trends plaguing the industry. This new milestone is indicative of a booming clean energy sector. That’s why they keep making headway and attracting investment — despite some sectors’ downturns in the ongoing transition from fossil fuels to renewable energy sources.
Dr. de la Rubia noted that “Spain is leading the pack in terms of growth, followed by Italy, then Germany with marginal growth, and France trailing behind.” There are major fault lines in France’s economy at the moment. Political uncertainty and continued stagnation is set to dampen its prospects significantly as we look to the months ahead.
Inflation Trends and Future Outlook
Despite this contradictory influence from different sectors, inflation pressures in the eurozone kept easing in April. Input cost inflation fell to a five-month low, and output charges increased at the slowest rate so far in 2025. These positive trends are welcome news for businesses continuing to wrestle with increasing costs.
The broader landscape remains complex. Composite PMI for the eurozone pointed to a drift into stagnation, with France still in the mire, signalling contraction for eighth month in a row. Dr. de la Rubia emphasized that “In the services sector, cost pressures are still relatively high, though they have eased a bit over the past couple of months.”
As you can imagine, economic analysts are keeping a very close eye on these developments. They’re ever more concerned about how long the eurozone can continue to bask in growth’s glow without significant services sector support.
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