Eurozone Business Growth Stalls in April as Services Weaken, Manufacturing Surprises

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"The services sector has turned into a bit of a party pooper” - Hamburg Commercial Bank.

Eurozone business activity stagnated in April as a renewed contraction in the services sector offset a surprise uptick in manufacturing output, according to a closely watched survey released on Tuesday.

The HCOB Flash Eurozone Composite PMI, compiled by S&P Global, fell to 50.1 from 50.9 in March, just above the 50.0 threshold that separates growth from contraction and marking a four-month low.

The market had expected a reading of 50.3, which confirms this to be somewhat of a disappointment for markets.

The services sector, which had supported growth in recent months, unexpectedly slipped into contraction. The Services PMI dropped to 49.7 from 51.0, its lowest level in five months.

The expectation was for 50.4.

In contrast, manufacturing output rose for the second month running, with the Manufacturing Output Index hitting 51.2 - the highest reading since May 2022 - which is a beat on an estimate for 47.4.

"The services sector has turned into a bit of a party pooper,” said Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. “But manufacturing is holding up better than expected, even in the face of new US tariffs.”

New orders across the euro area fell at the fastest pace this year, continuing a decline that began in mid-2023. Business confidence also deteriorated sharply, hitting its lowest level since November 2022, with services optimism now at a five-year low.

Price pressures eased, particularly in manufacturing, where input costs fell for the first time in five months. Selling price inflation slowed across both sectors, offering some support for the European Central Bank’s dovish stance.

Employment was flat in April, with manufacturing job losses offsetting modest gains in services. Backlogs of work continued to decline, a trend now running for 25 straight months.

National data showed diverging fortunes: Germany’s business activity declined after a March rebound, while France’s downturn deepened, led by shrinking services activity. Elsewhere in the eurozone, growth persisted but at a slower pace.