Flash PMI data for the Eurozone indicated that the economy contracted in April, with business confidence declining to its lowest level in more than 2 years.
The services sector was the main area of weakness, as manufacturing rose above expectations but remained in contraction territory due to tariffs. However, with future expectations declining in both sectors, the survey signals a broad-based downside risk to growth in the coming months. ⁽¹⁾
Eurozone Business Activity Comes in Flat
The Eurozone economy is on the edge of stagnation, with the Composite PMI at 50.1 in April 2025, signaling minimal business activity growth.
This marks a decline from March’s 50.9 and represents the weakest performance in four months. According to a statistical model, this PMI level corresponds to a quarterly GDP growth rate of just 0.1%, slower than the first quarter’s average.
The data, based on approximately 85% of usual survey responses, indicates a fragile economic environment, with downside risks looming due to weakening demand and global trade uncertainties. ⁽²⁾
Services Decline Overshadows Manufacturing Gains
The services sector showed contraction in April and is the main driver of weakness in the PMI data, ending a 4-month expansion. Services PMI contracted at 49.7.
The manufacturing sector also contracted but rose slightly from the previous survey from 48.6 in March to 48.7 in April. The rise, which is the strongest since May 2022, was partly driven by manufacturers front-running US tariffs, including a 10% flat rate on Eurozone exports and a 25% levy on autos, temporarily reduced from a proposed 20% rate. ⁽³⁾
Despite the rise in manufacturing output, the total volume of new orders continued to fall for manufacturers in April, causing backlogs of work to decline at the fastest rate in three months due to weak demand caused by trade uncertainties.
Chart of Manufacturing PMI 1Y Timeframe. Source: Trading Economics
Chart of Services PMI 1Y Timeframe. Source: Trading Economics
Business Confidence Weakens
Business confidence across the region plummeted to -0.73. Confidence in the services sector hit a five-year low at 2.4, a level not seen since the 2012 debt crisis.
Manufacturing sentiment also declined to -10.6, falling below the levels of 2019 during Trump’s first tariff wave in the US. ⁽⁴⁾
Regional Performances
Within the eurozone, Germany saw business activity decrease for the first time in four months during April after growth had hit a ten-month high in March.
Although manufacturing output expanded for a second successive month, services output fell for the first time since November 2024, contracting at the sharpest rate since February of last year.
Future expectations also fell in Germany, down to their lowest since last October, deteriorating in both manufacturing and services. Notably, the economy saw the worst reading for over one and a half years. Some support to German manufacturing sentiment came from hopes of increased fiscal spending, notably on defense. ⁽⁵⁾
Meanwhile, France remained in contraction and saw the pace of decline in business activity quicken over the month thanks to a faster service sector decline, where future expectations also sank to their lowest since the pandemic lockdowns of early 2020.
Manufacturing output edged back into growth in France for the first time since May 2022, with future expectations also up to an 11-month high, providing hopes of optimism for the eurozone’s second-largest member where confidence overall remains subdued by domestic and global political uncertainty. ⁽⁶⁾
The rest of the eurozone hence provided the main support to growth, albeit with the pace of expansion easing slightly from that seen in March and future expectations hitting their lowest since November 2022.
ECB Poised for Further Rate Cuts
On a positive note, inflationary pressures eased in April 2025, with the PMI’s main selling price index dropping to a level consistent with the European Central Bank’s (ECB) 2% target.
Service sector inflation cooled to its second-lowest level in nearly four years, while manufacturers reported falling input prices, signaling reduced cost pressures.
A composite indicator, combining PMI gauges and inflation deviations, remained firmly in rate-cutting territory, reflecting weak output growth, declining inflation, and a stalled labor market, with employment marginally declining in April. ⁽⁷⁾
These trends could provide the ECB with room to loosen monetary policy further, potentially through additional interest rate cuts to stimulate growth in a faltering economy. The combination of stagnant output, declining confidence, and cooling inflation underscores the need for supportive measures to counteract downside risks. ⁽⁸⁾
Euro Weakens on Weak PMI Data
The euro continued to weaken after the PMI data release, showing contraction in April as EUR/USD fell 0.35%. However, European stocks rose during the release. The CAC 40 index rose 1.85% while the DAX 30 rose 1.5% due to stronger future expectations of rate cuts from the ECB and the optimism from US-China trade talks. ⁽⁹⁾
