• Services PMI 47.6 vs 47.4 prelim
• Prior 50.2
• Composite PMI 48.8 vs 48.6 prelim
• Prior 50.7

Trouble, trouble. The services PMI was the lowest in 62 months while the composite PMI was the lowest in 17 months as the euro area economy is hit hard from the uncertainty caused by the Middle East conflict. The decrease in business activity at the composite level was entirely reflective of contraction in the services sector, which was the fastest in over five years.

Of note, demand conditions were heavily hit with the drop in total new business being to the quickest extent since November 2024.

As economic conditions take a knock, we’re also seeing inflation pressures creep higher in April. The rate of inflation accelerated further to a 40-month high, reflecting a broad-based quickening at the sector level. Meanwhile, prices charged were subsequently raised more aggressively with that being the sharpest in three years.

This chart says it all:

S&P Global notes that:

“The final eurozone 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.

”Although indicative of only a modest 0.1% quarterly GDP decline so far, the absence of any signs of the crisis easing any time soon suggests that the downturn may soon deepen.

“So far the service sector has been hardest hit, with consumerfacing business suffering a particular squeeze, amid a double whammy of surging energy prices and disruption to travel. However, while the manufacturing sector has shown resilience so far, this has reflected stock building as companies worry about further price hikes and supply squeezes. This will not only dampen manufacturing growth in the coming months as the stock build fades, but will also have a knock-on effect for service sector businesses that are reliant on manufactured inputs, most notably food and of course refined fuels, should these further supply and price worries materialise.

“The prospect of interest rate hikes are also front of mind among many financial service providers, hitting real estate activity in particular. However, how the ECB responds to the sharp rise in inflation being signalled by the PMI will have a key bearing on the economic outlook well beyond real estate. The concern is that, with business growth expectations already down sharply since the war started, higher interest rates will exacerbate this initial slump in sentiment.”

This article was written by Justin Low at investinglive.com.