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Business confidence in the Eurozone plunged in April after Donald Trump’s sweeping tariff announcements, while activity fell close to stagnation, as the US president’s trade war begins to drag on the economic region.
The flash estimate for Hamburg Commercial Bank’s composite Eurozone Purchasing Managers’ Index, compiled by S&P Global, showed that business confidence in April fell to its lowest level since November 2022.
Wednesday’s figures also indicated that economic activity in the Eurozone fell to 50.1 points from 50.9 the previous month, hovering just above the crucial threshold of 50 that separates contraction from expansion.
“The drop in confidence was widespread, both in terms of sector and geographical coverage,” according to the flash estimate, which is the first survey since Trump’s “liberation day” in early April.
The US president said then that he would impose a 20 per cent tariff rate on European goods exported to the US, but he has since lowered the rate to 10 per cent for 90 days to allow for negotiations.
Last week, the European Central Bank cut interest rates for the seventh time since June to 2.25 per cent, pointing to “exceptional uncertainty” and a deteriorating outlook for growth over “rising trade tensions”. Traders and analysts expect the ECB to continue lowering borrowing costs in June.
“Previous Eurozone optimism is crumbling and fears of disinflation and stagnation have returned,” wrote Carsten Brzeski, ING’s global head of macro, in a note to clients, adding that “a more significant drop in manufacturing PMIs next month” would not be surprising.
Germany, Europe’s largest economy, fell back into contractionary territory as the composite PMI for the country plunged to a four-month low of 49.7 in April, down from 51.3 in March.
However, manufacturing was stronger than expected. “Instead of falling off a cliff, [manufacturers have] actually increased production for the second month in a row,” said Cyrus de la Rubia, chief economist at HCOB.
He added that the slowing service sector had pushed “the whole economy into stagnation territory”.
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The S&P Global flash UK PMI index fell to a 29-month low of 48.2 in April from 51.5 in the previous month. This was lower than the 50.4 forecast by economists polled by Reuters.
Melanie Debono, an analyst at Pantheon Macroeconomics, said the data “shows clear signs of tariff front-running”, pointing to the first rise in foreign manufacturing orders, which she said was driven by companies “stocking up ahead of likely higher trade tariffs over the coming months”.
Additional reporting by Valentina Romei in London
