Quote from Alex bobby on May 6, 2025, 6:23 AM

Eurozone Growth Stalls in April as Services Stumble Despite Manufacturing Rebound

Economic momentum in the eurozone slowed to a crawl in April, with growth barely in positive territory as stagnation in the services sector offset a surprising resurgence in manufacturing. Although inflationary pressures continued to ease—fuelling expectations of a European Central Bank (ECB) rate cut in June—the outlook remains clouded by weak demand and waning business confidence.

According to the latest data from S&P Global, the eurozone’s Purchasing Managers’ Index (PMI) inched up to 50.1 in April from a previously estimated 49.7. While the figure technically denotes expansion, it barely scrapes past the threshold separating growth from contraction, highlighting the fragile state of the region’s economic recovery.

Manufacturing Rebounds, Services Stall

The modest uptick in growth was driven almost entirely by manufacturing, which posted its fastest rise in output in over two years. Easing supply chain constraints and a modest industrial revival helped lift the sector out of its prolonged slump.

However, this rebound was not mirrored in services—the backbone of the eurozone economy. The Services PMI fell to 50.1 from March’s 51.0, marking the weakest reading since late 2024. The data suggests that consumer and business demand in key service industries such as travel, hospitality, and business consulting is running out of steam.

“The services sector, which is a major player, practically stagnated in April,” noted Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. “Even though manufacturing output saw a surprising uptick, it wasn’t enough to prevent the overall slowdown in growth.”

Demand Weakens, Confidence Falters

Beneath the headline PMI numbers lies a concerning trend. New business orders declined for the eleventh consecutive month, and at a slightly faster rate than in March. Both goods producers and service providers reported lower sales, continuing a cycle of soft demand that has plagued the eurozone since mid-2023.

France continued to be the bloc’s laggard, with its composite PMI signalling contraction for the eighth month in a row. Political uncertainty and stagnant consumer demand have weighed heavily on the eurozone’s second-largest economy. In contrast, Spain led in terms of expansion, followed by Italy and Germany.

“Spain is leading the pack in terms of growth, followed by Italy, then Germany with marginal growth, and France trailing behind,” said de la Rubia. “We expect Germany to soon outpace Italy thanks to a generous fiscal package, while France is likely to remain at the bottom for now.”

Employment across the eurozone rose for a second straight month, with job gains in services offsetting ongoing cuts in manufacturing. However, hiring remains cautious, reflecting subdued sentiment and limited visibility about future demand.

Business confidence dropped for the fourth consecutive month, hitting its lowest level in nearly two and a half years. Rising geopolitical risks, global trade tensions, and persistent demand uncertainty continue to weigh heavily on corporate outlooks.

Cooling Inflation Strengthens ECB Rate Cut Outlook

Despite the subdued growth figures, there was positive news on inflation. Input cost inflation fell to a five-month low, and output charges—an indicator of how businesses pass costs onto customers—rose at their slowest pace so far in 2025.

“In the services sector, cost pressures are still relatively high, though they have eased a bit over the past couple of months,” said de la Rubia. “Inflation is down for sales prices and continued to trend lower… These latest figures seem to support the ECB’s stance.”

The inflation data bolsters the ECB’s case for a rate cut at its June meeting, a move that many on the Governing Council have already hinted at. With inflation slowing and growth fragile, markets are increasingly expecting the ECB to act soon to support the economy.

Eurozone Stocks Cool After April Rally

European equities retreated on Tuesday after a strong rally in recent weeks, as markets digested the PMI data and weighed expectations of ECB policy moves. The Euro STOXX 50 index fell 1%, while Germany’s DAX shed 0.7% and France’s CAC 40 slipped 0.5%.

Industrial heavyweights were among the biggest losers. Shares in Airbus, Siemens, and BASF each declined by around 2%. On the other hand, Carrefour and UniCredit bucked the trend, each rising 0.8%.

Earnings updates added further volatility. Continental rose nearly 2% after reporting its strongest quarterly sales in four years, citing resilience amid tariff uncertainties. Vestas, the Danish wind turbine giant, surged 4% after swinging back to profit in Q1.

Luxury fashion brand Hugo Boss also impressed, gaining nearly 6% on a revenue beat. However, Philips dropped 1% after cutting its full-year margin forecast. Investors are now turning attention to Ferrari’s upcoming results, expected later Tuesday.

Outlook: Fragile Recovery, High Hopes

The eurozone’s economy remains delicately balanced between modest recovery and prolonged stagnation. While manufacturing’s resurgence is a welcome surprise, the faltering services sector and persistent demand weakness underline just how vulnerable the recovery still is.

With inflation cooling, the ECB may have the breathing space it needs to begin easing rates. But unless consumer and business demand picks up—and confidence returns—rate cuts alone may not be enough to revitalise the region’s growth prospects.