In April, economic momentum across the Eurozone came to an abrupt halt. The escalating trade tensions took a heavy toll on services. According to the most recent available Composite Purchasing Managers’ Index (PMI), which tracks changes in economic activity, dropped to 50.1 from 50.9 in March. This decline reflects broader decelerating growth region-wide. Analysts are concerned that trade frictions are exacerbating economic recovery. They worry these trends could further weigh on business sentiment over the months ahead.
The services sector — the driving force of the Eurozone’s growth — was hit hardest by these challenges. The Services PMI dropped significantly from 51 to 49.7, signaling a contraction for the first time in 9 months. The manufacturing sector was a beacon of strength. It saw a one-off surge in export orders and modest gains in pricing power.
Services Sector Contraction
This recent drop in services sector growth underscores the mounting pressures businesses continue to experience as they navigate the crosscurrents of external trade headwinds. Recently, a large group of economists found that uncertainty created by tariffs is hurting businesses. Consequently, most companies are pushing back decisions and reducing expenditures.
Jonas Feldhusen, an economist, commented on the precarious state of the service sector, stating, “The service sector remains in a precarious state.” He focused on the good news coming out of the manufacturing sector. That doesn’t mean a lasting turnabout for the national economy… at least not yet.
Recent data from France shows just how deep that contraction has been in this industry. France’s Services PMI plunged to a grim 46.8. This heralds more serious pressure to come as firms are hit with falling demand and escalating costs of operating.
Manufacturing Sector Resilience
While services have touched on the reality of looming challenges, the Eurozone’s manufacturing sector has seen encouraging news. In April, the forward-looking Manufacturing PMI increased marginally to 48.7. This increase is good news, signaling an expansion in production for the second consecutive month. Feldhusen remarked, “Instead of falling off a cliff, they’ve actually increased production for the second month in a row, and even more robustly than in March.”
Manufacturers showed a weak ability to increase their selling price, indicating potentially better margins as input prices drop. This is great news indeed, especially considering that input price inflation slowed to its lowest rate since November 2024.
Germany’s manufacturing sector showed some strength overall even as its Composite PMI fell from 51.3 to 49.7. While private-sector employment did fall back slightly, better manufacturing margins could help insulate the sector from a broader recession down the road.
Business Confidence Takes a Hit
Business confidence in the Eurozone has cratered to its lowest point since November 2022. This worrisome trend is beginning to concern economists and policymakers alike. Such a rapid decline suggests increasing pessimism among businesses about the economy in general and possible future trade shocks.
Based on his analysis, Dr. Cyrus de la Rubia noted that manufacturers do appear insulated from underlying conditions. They are particularly worried about what the build-up of trade frictions would do to increase domestic prices. He stated, “The European Central Bank is getting some mild support for its rate-cutting stance from the price indicators in the services sector,” indicating that monetary policy may need to adapt to evolving economic conditions.
Feldhusen echoed these sentiments, forecasting that “we anticipate that trade frictions will negatively impact domestic prices,” which could lead to further challenges across both manufacturing and services sectors over time. He also averred that the present state of affairs is not so bad. Businesses should expect increased complexity, longer delays and restricted spending as everyone learns to navigate this new frontier.
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