Economic growth in the eurozone stalled in April, with trade tensions undermining optimism for the region’s recovery as the services sector slipped into contraction.
The eurozone’s Composite Purchasing Managers’ Index (PMI), a key indicator of private sector health, fell to 50.1 in April, down from 50.9 in March, missing consensus expectations of 50.3. This reading, barely above the 50.0 threshold that separates growth from contraction, points to stagnation as the second quarter began.
April’s figures revealed a split between the manufacturing and services sectors. The Services PMI dropped from 51 to 49.7, marking its first decline in five months, while the Manufacturing PMI rose to 48.7, surpassing expectations of a dip to 47.5. This divergence highlights the growing pressure on services, exacerbated by rising trade uncertainties.
Business confidence across the eurozone also took a hit, with sentiment falling to its lowest point since November 2022, staying well below the series average. The slowdown was widespread, affecting both manufacturing and services, with most major economies within the region showing signs of caution due to increasing geopolitical and trade-related tensions.
In Germany, the region’s industrial powerhouse, business activity contracted after three months of growth. Germany’s Composite PMI dropped from 51.3 in March to 49.7 in April, with services taking a harder hit. The Services PMI plunged to 48.8, down from 50.9, well below expectations of 50.3.
Service providers in Germany cited uncertainty related to tariffs and a hesitancy among clients. “Concerns over tariffs and the broader economic outlook have led to delays in decision-making and restrained spending,” said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. Despite the downturn in services, Germany’s private sector employment saw only a slight dip, and manufacturing margins improved, driven by falling energy prices.
Lower energy prices, partly due to concerns over a potential US recession, provided some relief to producers. Manufacturing firms also reported a rare uptick in export orders and a modest ability to increase selling prices, suggesting a glimmer of pricing power not seen in nearly a year. “Manufacturing seems to be holding up better than expected,” de la Rubia noted, despite the fresh tariffs introduced by US President Donald Trump earlier this month, which include a general 10% levy and a 25% tariff on car imports. “Most manufacturers in the eurozone are not too fazed. 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.”
However, France painted a less optimistic picture. The country’s Composite PMI dropped to 47.3 in April from 48, falling short of the expected 47.8. France’s services sector was particularly hard hit, with its Services PMI falling to 46.8, while manufacturing remained weak but showed some signs of stabilization at 48.2.
“Notably, the latest survey data pointed to pronounced demand weakness within domestic markets,” the report stated. Jonas Feldhusen, Junior Economist at Hamburg Commercial Bank, said France’s private sector “will face substantial pressure in the coming months,” highlighting the steep decline in orders and weakening outlook. “The service sector remains in a precarious state,” he added. “As the second quarter begins, business activity deteriorated, with declines in both domestic and foreign new business. In response, service providers reduced their workforce.”
While production in French factories edged up, Feldhusen cautioned that it was “not yet indicative of a sustainable turnaround.” He also pointed to political instability and fiscal challenges as compounding the situation, noting France’s “fragile debt situation” and the “constant risk of government collapse.”
