Eurozone Economy Grinds to Halt as Services Slump Offsets Factory Resilience

HCOB and S&P Global’s latest Purchasing Managers’ Index data reveals the eurozone economy teetered on stagnation in April, with the composite PMI hitting 50.1—barely above contraction territory.

The services sector unexpectedly shrank (PMI: 49.7), its first decline since November 2023, while manufacturing edged up to a 27-month high (48.7), defying forecasts of deeper contraction.

Germany’s services PMI slid to 48.8 as firms cited delayed client decisions amid U.S. tariff pressures, though factories posted stronger output growth. France faced steeper declines, with services at 46.8 and domestic demand “pronounced[ly] weak.”

Across the bloc, new orders fell for an 11th straight month, and business optimism plunged to its lowest since mid-2020. The U.S. imposition of 10% general tariffs and 25% auto levies in early April rattled service providers but left manufacturers surprisingly resilient.

Eurozone factories increased production at the sharpest rate since May 2022, exploiting cheaper energy imports from slumping global oil prices. “Instead of falling off a cliff, they’ve raised output more robustly than March,” noted Hamburg Commercial Bank’s Cyrus de la Rubia.

Services firms absorbed faster wage growth and dimming consumer sentiment, cutting jobs slightly in Germany and France. Input cost inflation eased to a five-month low, supporting the European Central Bank’s 25-basis-point rate cut in April.

Europe’s Economic Balancing Act

Policymakers now face a fractured economy: factories tentatively recovering while consumption-driven services falter. Trade friction fallout remains contained for now.

Manufacturers reported marginal export order gains, with German auto giants partially offsetting tariffs through price hikes. Yet inventories swelled as goods lingered in warehouses, signaling future production risks.

Economists warn stagnation could persist through mid-2025, with ING slashing GDP forecasts to 0.5% annual growth. Defense spending and infrastructure plans may later stimulate demand, but near-term momentum hinges on resolving U.S.-EU trade tensions.

With services employment flatlining and factories still trimming staff, the ECB’s rate-cut path offers limited relief to an economy caught between industrial grit and consumer retreat.