As the potential for new tariffs from the United States looms, businesses within the eurozone are exhibiting a slight shift toward optimism regarding the economic climate. Last year, the eurozone economy faced stagnation, raising concerns about its structural weaknesses.
However, early indicators suggest a modest rebound in the first quarter of this year. The manufacturing Purchasing Managers’ Index (PMI) saw an increase, climbing from 48.9 in February to 50.7—the highest level in two and a half years.
This upswing hints at an overall stabilization, despite new orders continuing to contract. Fortunately, the rate of this contraction has been decreasing month by month, signaling a potential turnaround.
Anticipated investments in defense and infrastructure are fueling optimism for a more sustained recovery, particularly in Germany, where the manufacturing PMI experienced remarkable growth. Nonetheless, the ongoing trade war and sluggish global demand could keep export orders under pressure.
In the services sector, the potential escalation of the trade war may not pose as significant a risk. Domestic demand remains critical, and improvements in purchasing power are encouraging prospects for growth.
However, geopolitical tensions are negatively impacting consumer confidence, which casts a shadow over the services outlook and contributes to its subdued state. Additionally, price pressures eased in March, creating a complex scenario for the European Central Bank (ECB).
During its upcoming April meeting, the ECB faces a decision on whether to continue easing measures or pause the cut cycle while observing the evolving economic context. The current PMI data reflect modest growth alongside declining inflation.
However, impending announcements regarding US tariffs and potential European responses may significantly alter this outlook in the near future.