Eurozone growth stagnated in April, as mounting trade tensions and concerns over geopolitics weighed on business confidence. The Composite PMI dropped from 50.9 in March to 50.1, signaling minimal growth. For the first time in five months, the services sector contracted, while manufacturing showed slight improvements. Experts warn that the situation could worsen in the coming months due to rising uncertainty over global trade dynamics.

Weakening Momentum in Eurozone Growth

The Eurozone economy faced an uphill battle as trade tensions escalated in April, dragging growth to a standstill. The Composite PMI, which measures overall business activity, fell to 50.1 from 50.9 in March, a clear sign of slowing momentum. While still technically in positive territory, the index indicates that the economy barely avoided contraction. Services, a key driver of the region’s economic activity, shrank for the first time in five months, with their PMI falling from 51.0 to 49.7.

Manufacturing, on the other hand, showed slight signs of improvement, with its PMI rising to 48.7, which exceeded analysts’ expectations of a decline to 47.5. Despite this, overall business confidence collapsed, with sentiment dropping to its lowest point since November 2022. Surveys showed a widespread decline in optimism across nearly all Eurozone economies, fueled by concerns about global trade tensions and geopolitical instability.

Germany’s Industrial Base Shows Resilience Amid Trade Fears

Germany, the largest economy in the Eurozone, demonstrated relative strength despite trade tensions. The country’s Composite PMI dropped to 49.7 in April, down from 51.3 in March, ending three consecutive months of growth. The services sector was hit the hardest, with its PMI falling to 48.8 as businesses delayed decisions due to fears of new tariffs.

Despite these challenges, German manufacturers showed resilience, reporting rising export orders and a drop in energy costs. Employment dipped slightly, but overall production increased for the second month in a row. Dr. Cyrus de la Rubia, chief economist, explained that the country’s industrial sector “held up better than expected,” despite the pressure from tariffs imposed by the United States, including a 10% general tariff and a 25% auto import duty.

“Instead of shrinking, manufacturers increased production again, even stronger than in March,” de la Rubia said, reflecting optimism in the face of global trade uncertainty.

France Faces Steep Decline in Services Sector

Meanwhile, France saw a significant downturn, with its Composite PMI falling to 47.3, well below expectations. The country’s services sector was hit especially hard, dropping to 46.8, as demand weakened both domestically and internationally. Manufacturing showed only slight stability, with its PMI ticking up to 48.2. However, this provided little comfort, as experts warned of continued pressure.

Jonas Feldhusen, a leading economist, highlighted the persistent political instability and fiscal challenges in France, which contributed to the worsening economic conditions. “France’s debt burden and fragile government leave little room for error,” Feldhusen remarked. He also pointed out that many service providers began reducing their workforce as business activity continued to decline, signaling potential longer-term difficulties.

Slowing Inflation Offers ECB Room to Act

While the Eurozone’s economic growth slowed, there was a slight silver lining in the form of easing inflation. Input costs increased at their slowest rate since November 2024, and output prices also saw a decline, hitting a five-month low. This reduction in inflationary pressure provides the European Central Bank (ECB) with more room to maneuver in terms of interest rate cuts.

Dr. de la Rubia noted that the slowdown in services inflation would support the ECB’s plans for potential rate cuts. However, he also warned that lingering cost pressures, particularly in manufacturing, would continue to affect profit margins.

Feldhusen echoed these concerns, predicting that the ongoing trade disruptions would likely lead to a broader disinflation trend. “We expect unsold goods to drive down prices in the coming months,” he said, forecasting the possibility of up to three ECB rate cuts by the end of the year.

Fiscal Measures May Offer Long-Term Relief

Looking ahead, both de la Rubia and Feldhusen believe that Europe’s fiscal support initiatives, such as increased defense spending and infrastructure projects, could eventually help revive industrial activity and services. However, these measures are expected to take time before they have a meaningful impact on the economy.

“Eventually, these measures should lift activity across the bloc,” de la Rubia concluded, offering a cautious but hopeful outlook for the future. As Europe faces an uncertain economic environment, these fiscal initiatives may provide some much-needed stability in the long run.

The Eurozone’s economic performance in April reflects growing uncertainty in the face of escalating trade tensions and geopolitical risks. As services slide into contraction and business confidence weakens, both governments and central banks will need to carefully consider their next steps to avoid further downturns. With inflationary pressures easing and fiscal support measures on the horizon, there is hope for a recovery, but it remains to be seen whether these actions can offset the current challenges