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Economic activity across the eurozone stagnated in April, as trade tensions and geopolitical uncertainty weighed heavily on the services sector. The eurozone’s Composite PMI dipped slightly to 50.1, down from March’s 50.9, falling short of expectations. The reading barely surpassed the growth threshold, signaling stagnation as the second quarter of 2025 began. While manufacturing activity showed slight improvement, the services sector shrank, raising concerns over the region’s economic outlook.

Economic Activity Shows Signs of Stagnation

The Composite Purchasing Managers’ Index (PMI) for the eurozone, a key gauge of economic health, declined to 50.1 in April from 50.9 in March. This drop marked a period of stagnation, with the PMI remaining only marginally above the 50-point threshold that separates growth from contraction. A significant part of this decline stemmed from the services sector, which saw its PMI drop to 49.7. This was the first contraction in the services industry in five months, reflecting concerns about weaker demand amid rising trade tensions.

Meanwhile, the manufacturing sector posted a modest increase, edging up to 48.7 from 48.4 in March. However, it still remained in contraction territory, indicating that the industrial recovery is fragile. Business sentiment across the region also took a hit, falling to its lowest level since November 2022, as both services and manufacturing sectors experienced weak confidence.

Germany Shows Resilience Amidst Global Tensions

Germany, the eurozone’s largest economy, experienced a slowdown in economic activity during April, with its Composite PMI falling to 49.7 from March’s 51.3. The services sector, in particular, struggled, dropping to 48.8, much lower than anticipated. Companies in Germany cited concerns about tariff threats and ongoing uncertainty in global trade as factors behind hesitant customer behavior, which delayed key business decisions.

Despite these setbacks, Germany’s manufacturing sector showed surprising resilience. According to Dr. Cyrus de la Rubia, a leading economist, factories increased production for the second consecutive month, aided by lower energy prices and cost-cutting measures. Export orders also saw an uptick, and some companies were able to raise their prices again, indicating that the manufacturing sector might still have room for growth.

“Most eurozone producers adapted quickly,” Dr. de la Rubia commented. “Despite the ongoing challenges, they are staying afloat and even growing.”

France Faces Deeper Economic Struggles

On the other hand, France’s economy showed signs of deeper contraction in April. Its Composite PMI dropped significantly to 47.3, with the services sector particularly hit. The services PMI fell to 46.8, signaling a further decline in economic activity. The manufacturing sector also struggled, only slightly increasing to 48.2.

Economist Jonas Feldhusen pointed out that the weakening French economy could face further challenges. “We are seeing falling demand both domestically and abroad, and political instability along with fragile public finances are making it harder for the country to recover,” Feldhusen noted. “Private firms are under significant strain, with weak orders and shrinking workforces.”

Inflation Eases, Providing Room for ECB Rate Cuts

One of the few positive developments in the eurozone was the easing of cost pressures. In April, input prices rose at their slowest pace since November 2024, while output prices hit a five-month low. This deceleration in price growth could provide the European Central Bank (ECB) with some leeway to cut interest rates later this year.

Dr. de la Rubia emphasized that slower price growth could prompt the ECB to act. “The easing of inflationary pressures provides a strong case for rate cuts,” he said. However, he cautioned that some service firms may still feel squeezed by rising internal costs.

Feldhusen also predicted that trade tensions would exert downward pressure on domestic prices in the coming months. “Weak demand and unsold goods will increase the risks of deflation,” he said. He also forecasted that the ECB might implement three additional rate cuts throughout 2025.

Fiscal Support and Investments Could Aid Recovery

Economists believe that fiscal support, such as increased government spending on defense and infrastructure projects, could help boost eurozone growth in the coming months. In Germany, for example, rising defense budgets and planned investments in infrastructure could provide much-needed support to both the manufacturing and services sectors.

“These investments might take time to show results, but they could provide the necessary boost to revive both industries,” Dr. de la Rubia stated. As the eurozone continues to navigate through trade tensions and other economic challenges, these government initiatives may prove crucial in fostering long-term recovery.