Amid dwindling confidence and declining orders, business activity in the eurozone has been inching closer to contraction territory in April, a new survey shows.
Although barely changed since March, the indicator has hit its lowest level in four months as companies in the single currency area’s largest economies held back on output.
Germany joins France in a zone of shrinking business activity
A faster decrease in new orders and growing pessimism have held back business activity in the eurozone since the start of the month, according to provisional survey data compiled by Hamburg Commercial Bank (HCOB) and the financial information and analytics firm S&P Global.
Output in the private sector has remained relatively stable in April despite manufacturers continuing to scale back on purchases and business sentiment hitting its lowest mark in well over two years, the authors of the study note.
Their seasonally adjusted Eurozone Composite Purchasing Managers Index (PMI), measuring activity in both manufacturing and services, dropped from 50.9 in March to 50.1 in April, barely remaining in growth range above the 50-point threshold.
While emphasizing that the current level signals a “broadly stable picture for business activity” at the start of the year’s second quarter, the report highlights that the latest reading of the indicator is the lowest in four months.
Business activity in Germany, Europe’s economic powerhouse, decreased for the first time in the past four months in April after growth there had scored a 10-month high during the previous month.
The French economy, the second-largest in the eurozone, continued to contract with accelerating decline in business activity in comparison with March.
The rest of the euro area continued to record growth, but companies were reluctant to expand output, further reducing new orders this month.
“The latest decline in new business was the most marked in the year-to-date,” the researchers stated, adding: “Contractions were seen across both the manufacturing and services sectors. New export orders (which include intra-eurozone exports) also decreased.”
Along with tariffs, April brings a drop in business confidence
Amid heightened trade tensions between Europe and the U.S. over President Donald Trump’s new tariffs, confidence in the economic outlook has decreased significantly. Business sentiment in the eurozone is at its lowest level since November 2022, the survey has established.
“The drop in confidence was widespread, both in terms of sector and geographical coverage. Each of the manufacturing and services categories posted lower optimism,” the report remarks, noting the trend has taken hold of the whole eurozone.
Employment in the euro area stagnated, too, with manufacturing job cuts outweighing a modestly increasing workforce in the services sector. “Continued falls in employment in the largest two Eurozone economies cancelled out job creation elsewhere,” the authors also found.
Meanwhile, inflationary pressures eased at the start of the quarter, with both input costs and output prices rising at weaker rates. Companies continued to reduce their purchases and stocks. “A faster drop in new business suggests this weakness might stick around for a while,” commented Cyrus de la Rubia, Chief Economist at HCOB. He is convinced, however, that “the higher fiscal spending on infrastructure in Germany and defense spending across Europe should eventually benefit not just manufacturing but also the service sector.”
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