Euro Zone Services Activity Contracts Sharply in April, PMI Data Shows
April PMI Data Highlights Euro Zone Economic Challenges
Services Sector Faces Contraction
LONDON, May 6 (Reuters) - Euro zone services activity contracted in April for the first time in almost a year, hit by weakening demand and deteriorating export business as the Middle East war weighed on consumer-facing sectors, a survey showed on Wednesday.
S&P Global's Eurozone Services Purchasing Managers' Index slumped to a 62-month low of 47.6 in April from March's 50.2, just above a preliminary estimate of 47.4.
Decline in Demand and Export Business
Demand in the bloc's dominant services industry weakened further last month, declining at the sharpest pace since October 2023, with new export business also deteriorating. The new business index fell to 46.5 from 48.6.
"The final euro zone PMI data confirm the earlier signs of an economy slipping into decline during April as the ongoing war in the Middle East derails the recovery that had been building prior to the outbreak of the conflict," said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Composite PMI and Country-Level Performance
April's services downturn dragged an overall composite PMI, which tracks manufacturing as well, to 48.8 from 50.7, marking a 17-month low and matching its preliminary reading. It hasn't been sub-50 since the end of 2024.
Among major economies, Germany, France and Spain all recorded contractions in private sector activity, with the euro zone's two largest economies posting their fastest declines in over a year.
Employment and Price Trends
Employment in the service sector remained broadly unchanged in April, a departure from a stronger hiring trend seen for five years.
Prices charged by service providers rose at the fastest rate in two years while input costs increased at a three-year high as energy pressures intensified.
"So far the service sector has been hardest hit, with consumer-facing business suffering a particular squeeze, amid a double whammy of surging energy prices and disruption to travel," Williamson said.
Central Bank Response and Business Confidence
Last week the European Central Bank left interest rates unchanged as expected but extensively debated a hike to combat soaring inflation and signalled both on and off the record it may pull the trigger in June.
Outlook and Future Expectations
Business confidence in the service sector fell to a 42-month low as firms grew increasingly pessimistic about growth prospects amid the prolonged conflict.
Composite Future Output Index
Optimism across both services and manufacturing firms waned and the composite future output index fell to 54.9 from 56.9 - its lowest since September 2023.
(Reporting by Jonathan Cable; Editing by Joe Bavier)
