Eurozone April flash services PMI 49.7 vs 50.5 expected

• Prior 51.0
• Manufacturing PMI 48.7 vs 47.5 expected
• Prior 48.6
• Composite PMI 50.1 vs 50.3 expected
• Prior 50.9

It’s a mixed report but overall it shows that euro area business activity basically ground to a halt in April. An improvement in manufacturing activity is the only bright spot, with output levels at its highest in 35 months. However, new orders were a big drag as firms remained reluctant to expand output for an eleventh month running. Meanwhile, the outlook for the year ahead is taking a turn for the worse amid fears on US tariffs and trade uncertainty. HCOB notes that:

“Manufacturing seems to be holding up better than expected. Despite the US introducing general tariffs of 10% and car
tariffs of 25% at the start of April, 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. Manufacturers have
also slowed down job cuts and managed to boost their profit margins, thanks to lower input prices and the ability to raise
output prices faster than the previous month. Energy prices, which have dropped due to US recession fears, are currently a
boon for the Eurozone’s manufacturing sector. Another positive factor is the announced increase in defence spending.

The service sector has turned into a bit of a party pooper. Activity has shrunk instead of growing, which it had been doing
almost continuously since February 2024. This has pushed the whole economy into stagnation territory, according to the
composite PMI. 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.

The European Central Bank is getting some mild support for its rate-cutting stance from the price indicators in the services
sector, which the monetary authorities are closely watching. Costs have risen at a similar rate to March, but the increase in
selling prices has slowed significantly. 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.

Looking at the two major economies of the Eurozone, Germany and France, we see a similar pattern. Both countries saw
an increase in manufacturing output in April, while activity in the services sector shrank. The overall weakness seems a bit
more pronounced in France, especially in the services sector. This might be due to the contrasting political landscapes: in
France, there is a constant risk of government collapse amid a fragile debt situation, while in Germany, there is a chance of
having a functioning new government with significant fiscal leeway starting in May.”