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Business sentiment in the Eurozone took a hit in April following the tariff announcements made by US President Donald Trump, signaling the impact of the trade war on the economy.
The flash estimate for the composite Eurozone Purchasing Managers’ Index by Hamburg Commercial Bank and S&P Global showed a significant decline in business confidence, dropping to its lowest level since November 2022 and well below the long-term average. The UK also experienced a sharper decline in the PMI than anticipated.
According to the flash estimate, the decrease in confidence was widespread across sectors and regions, with the survey conducted after Trump’s announcement of imposing tariffs on European goods. Although the tariff rate was later reduced to 10 per cent for 90 days for negotiations with the EU, the uncertainty has impacted the economy.
Last week, the European Central Bank reduced interest rates for the seventh time since June, citing “exceptional uncertainty” and a deteriorating growth outlook due to trade tensions. Analysts predict further rate cuts in June to stimulate economic activity.
The preliminary composite Eurozone PMI for April indicated a slowdown in economic activity, nearing stagnation as it fell to 50.1 points from 50.9 in March, just above the contraction threshold of 50.
Carsten Brzeski, ING’s global head of macro, noted a shift in Eurozone sentiment towards disinflation and stagnation, suggesting a potential drop in manufacturing PMIs in the following month. Germany, the largest economy in Europe, saw its composite PMI drop to 49.7 in April, indicating contraction.
Despite manufacturing showing resilience, the service sector slowdown pushed the overall economy towards stagnation. Analysts are closely monitoring the economic indicators for further developments.
The S&P Global flash UK PMI index dropped to a 29-month low of 48.2 in April, indicating a slowdown in economic activity. Analysts attribute this to tariff concerns, with foreign manufacturing orders rising as firms prepare for potential trade tariffs.
Additional reporting by Valentina Romei in London