• Prior 50.6
• Composite PMI 50.9 vs 50.4 prelim
• Prior 50.2

The headline continues to point to a marginal growth in the euro area services sector to wrap up Q1. The feeling is that it’s not the best but not the worst either. In other words, the euro area economy continues to stagnate in general. There will be some boost from increased spending in Germany at some point but Trump tariffs do threaten to derail the outlook going into next year. HCOB notes that:

“You can’t really call it growth anymore in the Eurozone’s service sector. Once again, the index is hovering only slightly above the 50-point expansion threshold. New business has even seen a small drop for the second month running, and backlogs of work are continuing their downward trend. In Germany, we’ll likely soon see some indirect boosts in the services sector due to increased spending on infrastructure and defense. But for the Eurozone as a whole, the service sector could face tougher times. That said, rising real wages could help stimulate private consumption, which would especially benefit service providers.

“Inflationary pressures in the service sector eased in March after trending upwards over the past few months. Costs are still rising at a decent clip, but not as rapidly as before. Meanwhile, service providers are holding back on price hikes more than they have in recent months. However, there’s no all-clear for the European Central Bank (ECB) yet since inflation remains historically high. On top of that, the ECB is pointing to increased uncertainty. So, the ongoing debate within the ECB about whether and at what pace to further cut interest rates is pretty understandable.

“At the end of last year, it looked like the Eurozone was heading into a recession, but things have somewhat stabilized at the start of this year. For instance, the Composite PMI was in growth territory for the third consecutive month, albeit just barely. However, US tariffs could quickly throw the Eurozone’s economy off course again. That’s why the fiscal package planned by the Eurozone’s largest economy, which is mainly aimed at supporting the defense and construction industries but could also indirectly benefit the service sector, is a welcome counterweight. It significantly reduces the risk of a downturn across the entire Eurozone.”

This article was written by Justin Low at www.forexlive.com.