Euro area: April PMI not hit yet by tariff concerns

The composite PMI index for the Euro area decreased by 0.8 points in April to 50.1, nearly aligning with consensus expectations of 50.3. Specifically, the services component unexpectedly declined by 1.3 points, entering the theoretical contraction zone for activity. Conversely, the manufacturing index remained virtually unchanged at 48.7 (+0.1 point), surpassing expectations of 47.5. These results reflect a mixed situation in the Euro area within an environment that remains difficult to decipher . Services sector disappointed in April The primary disappointment stems from the services sector. The detailed survey results for the Euro area indicate that businesses anticipate a significant deterioration in activity, with a decline in order books (-1.1 points) and activity outlook (-4.7 points). The only component that shows an uptick is the outstanding business , which increased by 1.3 points, yet remains at a relatively low level of 48.1. By country, the available data from France and Germany also point to a deterioration in the sector. In both countries, the services PMI index fell by 1.1 points to 48.8 and 46.8, respectively, and below consensus expectations. Finally, the continued decline in the price charged component suggests that inflationary pressures in the sector may continue to dissipate, which would be a positive sign for the ECB regarding services’ inflation. Deciphering the situation in the manufacturing sector is somewhat more complex. The manufacturing index for the Euro area surprised by remaining almost stable at 48.7 (+0.1 point), while a decrease to 47.6 was anticipated. In Germany and France, the index slightly declined by 0.3 points (but less than what consensus expected ) . This relative performance can be attributed to a rebound in production, possibly driven by anticipation of the return of tariffs after the 90-day grace period decided at the beginning of April . Nevertheless, order books continued to deteriorate, suggesting that a downturn in activity is also highly probable Weak A pril PMI paves the way for a new ECB rate cut in June Today’s numbers are broadly consistent with our view that the E uro area economy will continue to grow moderately at the beginning of this year . However, the second quarter might be more challeng i ng in terms of GDP growth due to the uncertainty surrounding the evolution of U.S. trade policy and the outcome of ongoing negotiations . All in all, a deteriorated outlook added to a continued disinflation, reinforce our view of a new ECB rate cut in June.