Tariff impact, Eurozone April services PMI unexpectedly contracts, French business activity accelerates decline
The impact of tariffs has led to an unexpected contraction in the Eurozone's April services PMI, with the German private sector entering contraction for the first time. The preliminary composite PMI for Germany in April is 49.7, and the preliminary services PMI is 48.8, both lower than expected. Although manufacturing output has increased, service sector activity has significantly declined, reflecting a bleak economic outlook. The International Monetary Fund predicts that the German economy will stagnate, and the government will release new economic forecasts indicating a possibility of zero GDP growth over the next three years
Tariffs Weigh on Service Sector Activity, German Private Sector Contracts for the First Time in Four Months in April
Concerns over tariff uncertainty have led to a sharp decline in service sector activity, causing the German private sector to unexpectedly contract for the first time in four months.
According to data released by S&P Global on Wednesday, Germany's April Composite PMI preliminary reading was 49.7, below the expected 50.5 and the previous value of 51.3, marking the lowest level since December of last year. A reading of 50 separates expansion from contraction.
While Germany has primarily struggled with manufacturing in recent years, the decline in the service sector this time is more pronounced. The preliminary reading for Germany's April Services PMI was 48.8, below the expected 50.2 and the previous value of 50.9, the lowest in 14 months.
Germany's April Manufacturing PMI preliminary reading was 48, below the expected 47.6 and the previous value of 48.3. Manufacturing output grew for the second consecutive month, but the growth rate slowed to 51.6. New orders also saw a slight increase, partly attributed to orders being placed early and inventory accumulation.
S&P noted that trade concerns may lead to delayed decision-making, and consumer spending has also been restrained due to worries about economic and political prospects. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, stated:
“It can be said that Germany's export-dependent growth model is facing some serious challenges, but the U.S. tariff policy has not yet led to a significant decline in manufacturing.”
“The situation for service providers is not smooth; not only has activity declined, but optimism about future business has also been hit. However, ongoing job growth and certain signs of stability in new business indicate that companies are far from giving up.”
Analysts say this data exacerbates Germany's bleak economic outlook, as the country is considered particularly vulnerable to global trade frictions. The International Monetary Fund (IMF) projected on Tuesday that Germany's economy will stagnate this year, having previously forecasted a growth of 0.3% in January.
Additionally, media reports indicate that the German government will release new economic forecasts on Thursday, expecting GDP to remain flat in 2025, marking zero growth for the third consecutive year, a historic record. This deterioration reflects a sudden shift in Germany's economic situation; just a few weeks ago, there was optimism about the new government's plans to significantly increase defense and infrastructure spending.
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