Private-sector growth across the eurozone came to a halt in April, as the services sector dragged overall momentum down. The Composite PMI, which measures business activity across both manufacturing and services, dropped to 50.1, from 50.9 in March. This slight decline still keeps the index barely above the key growth-contraction threshold of 50.
Despite the overall slowdown, business activity showed a clear divergence across sectors. Manufacturing saw slight improvement, while services posted their first decline in five months. The Services PMI fell to 49.7 from 51, while Manufacturing PMI edged up to 48.7, slightly surpassing expectations.
Low business confidence remains a persistent issue across the bloc. Firms reported widespread concerns amid continued trade tensions and rising geopolitical risks. The survey data reflects the growing uncertainty, with confidence now at its weakest level since November 2022.
Germany Maintains Steady Manufacturing Performance, But Services Shrink
Germany’s private sector saw a notable drop in April, with its Composite PMI falling to 49.7 from 51.3 in March. The country’s services sector was hit hardest, with its PMI dropping to 48.8, significantly below forecasts. Experts pointed to concerns over trade tariffs and global economic uncertainty as key factors impacting demand.
Dr. Cyrus de la Rubia, chief economist at the Hamburg Commercial Bank, highlighted that falling energy prices provided a boost for German manufacturing. While service providers struggled, German manufacturers experienced stronger margins, along with a surprise uptick in export orders for the second consecutive month.
The German manufacturing sector also noted rare pricing power. Producers were able to implement modest price hikes for the first time in several months. Interestingly, the impact of new US tariffs—10% on all goods and 25% on car imports—has not yet disrupted the German industrial landscape. Dr. de la Rubia confirmed that despite tariff concerns, German manufacturers remain resilient, with output continuing to rise and exceeding the pace of growth seen in March.
France Faces Steeper Contraction as Domestic Demand Weakens
In contrast to Germany’s steady performance, France’s private-sector contraction deepened in April. The country’s Composite PMI dropped to 47.3, down from 49.7 in March, marking a significant slowdown in business activity. This is part of an ongoing trend, as France has struggled with stagnant growth for several months.
The Services PMI in France dropped to 46.8, and while manufacturing showed some stability, its PMI stayed below the 50 mark at 48.2. French businesses cited weak demand from both domestic and international sources as a major issue. Jonas Feldhusen, an economist at IHS Markit, warned that these weak conditions may lead to additional pressure on France’s economy in the coming months.
Some service providers in France have already begun reducing their workforce in response to falling orders and lackluster demand. Although there were minor gains in manufacturing, Feldhusen noted that there was no clear indication of a lasting recovery in the French economy. Political instability and rising concerns about government debt also remain persistent challenges for the French business environment.
Declining Price Pressures Could Offer ECB Some Relief
In a somewhat positive turn, input and output prices grew more slowly in April, offering some relief to the European Central Bank (ECB). Service-sector firms reported the lowest cost inflation since November 2024. This slowdown in price growth gives the ECB some room to consider further interest rate cuts, which could help stimulate economic activity.
De la Rubia mentioned that lower price growth could provide the ECB with modest support for its planned rate cuts. However, service-sector cost inflation still remains a concern, squeezing company margins and limiting profitability. Feldhusen noted that rising inventories, driven by weak demand, could push prices lower in the months ahead, potentially adding further pressure to the economic situation.
Both economists expect that the ECB may implement up to three more interest rate cuts this year, depending on how the economic environment evolves. They also predict that increased fiscal spending, particularly on defense and infrastructure, could eventually offer some stimulus to the eurozone economy. However, the impact of these measures is unlikely to be felt immediately.
Outlook for the Eurozone Economy
Looking ahead, the outlook for the eurozone economy remains clouded by uncertainty. Geopolitical risks, particularly the ongoing trade tensions between the US and China, continue to pose significant challenges for businesses across Europe. Despite the rising tariffs and political tensions, there are some signs of optimism in specific sectors, such as manufacturing in Germany.
In the short term, eurozone policymakers will need to focus on maintaining economic stability. Lower price growth and potential interest rate cuts could provide some breathing room, but the full recovery will depend on addressing deeper structural issues, including political instability, weak domestic demand, and ongoing global trade disruptions.