European bonds rose. Chinese demand shifted from U.S. Treasuries. German equities outperformed. The euro dipped. Oil fell 3.13% on OPEC+ output concerns and tariff uncertainty.

European bond prices advanced over the week, driving yields lower. Chinese investors increased their demand for bonds, shifting from U.S. Treasuries to European debt—particularly German, Spanish, and Italian securities. Equity markets also posted solid gains, with Germany outperforming, rising nearly 5%. The euro depreciated slightly, losing 0.17% against the U.S. dollar. Meanwhile, Brent crude oil prices declined by 3.13%, pressured by ongoing tariff uncertainty and speculation that OPEC+ may accelerate production increases at its June meeting.

Eurozone economic activity weakened in April, with a sharp slowdown in services, declining consumer confidence, and stagnation risks. The ECB is expected to ease further amid trade uncertainties and weak growth prospects.

Eurozone economic activity weakened in April, with the PMI slipping to 50.1 amid a sharp slowdown in services, particularly in Germany and France. Germany’s services PMI dropped to a 14-month low, and its private sector contracted for the first time in four months. Manufacturing showed marginal improvement but remained in contraction. Consumer confidence also fell sharply, suggesting growing caution among households, likely dampening consumption and investment. The ECB’s recent rate cut appears justified, and further easing is expected due to rising stagnation risks and trade uncertainty. Meanwhile, German business sentiment ticked up slightly, with the Ifo Index improving, but underlying indicators such as the Composite PMI continue to point to stagnation. The outlook remains clouded by geopolitical tensions, limited structural reforms, and uncertainty around fiscal stimulus deployment. Overall, the Eurozone faces a challenging path, with monetary policy again bearing the burden of support as confidence and growth weaken.

Eurozone PMI fell in April, driven by weak services. Germany’s economy contracted, signalling broader slowdown. ECB likely to ease further amid rising stagnation and trade concerns.

The Eurozone’s April PMI declined to 50.1 from 50.9 in March, a four-month low that, while less severe than feared, reflects increasing strain on the economy. The drop was primarily driven by a sharp slowdown in the services sector, which fell to 49.7 from 51.0—its first contraction since late 2023—while manufacturing posted a slight improvement, rising to 48.7 from 48.6, though still firmly in contraction territory. Forward-looking indicators, including new orders and business expectations, point to further weakening ahead. In Germany, the private sector shrank for the first time in four months, with the Composite PMI falling to 49.7. Particularly concerning was the services PMI, which tumbled to 48.8—its lowest in 14 months—reflecting heightened anxiety over trade tensions and broader economic uncertainty. Manufacturing in Germany, while marginally improved, remains sluggish and vulnerable to external shocks. France also saw its composite PMI dip below the 50 thresholds, signalling a broad-based loss of momentum across the Eurozone’s core economies. With inflationary pressures continuing to ease, the ECB’s recent rate cut appears increasingly justified, and further monetary stimulus is likely. As confidence erodes and disinflation risks grow, the burden of supporting the Eurozone economy will once again fall to the ECB, while fiscal measures in Germany and the EU are expected to take time before delivering meaningful results.

We expect the European Central Bank to implement further monetary easing in the coming months, as weakening PMIs, subdued inflation, and growing trade-related uncertainty weigh on the Eurozone’s economic outlook.

Eurozone consumer confidence dropped sharply in April, raising concerns over consumption, investment, and trade.

Eurozone consumer confidence deteriorated significantly in April, with the flash estimate falling to -16.7 from -14.5 in March—well below the -15.5 consensus—marking the first sentiment data to capture the effects of recent “Liberation Day” tariff announcements. Although consumer confidence does not translate directly into household spending, the sharp decline casts doubt on the ECB’s earlier projections for a consumption-led recovery in 2025, which anticipated 1.4% growth in private consumption driven by rising real incomes and a falling savings rate. Instead, heightened uncertainty may prompt households to increase precautionary savings and delay major purchases, undermining momentum. This climate of uncertainty is also likely to weigh on business investment, while the direct impact of tariffs—potentially shaving 0.1 percentage point off Eurozone GDP growth even in a moderate scenario—further clouds the outlook.

We expect that the combination of declining consumer confidence, increased uncertainty, and the impact of tariffs will hinder consumption growth and business investment, leading to stagnation in Eurozone GDP through 2025.

German business sentiment improved in April, but underlying economic weakness, policy uncertainty, and geopolitical risks suggest stagnation may persist despite hopes for fiscal stimulus-led recovery.

German business sentiment unexpectedly improved in April, with the Ifo Business Climate Index rising to 86.9 from 86.7 in March, surpassing expectations and indicating that recent US tariffs have not yet significantly affected the economy. The Ifo Expectations Index, which reflects companies' outlooks for the coming months, declined only slightly to 87.4—still better than forecast—suggesting a sense of resilience or delayed reaction to trade tensions. However, despite this modest uplift, the broader economic picture remains subdued, with the Composite PMI—often seen as a more accurate gauge of real GDP—now indicating zero growth. This raises questions about whether German businesses are genuinely confident or merely underestimating emerging risks. The economy remains at a crossroads, facing both the uncertainties of a new government with limited structural reform ambition and the potential benefits of a large-scale fiscal stimulus focused on infrastructure and defense. While such investments could lift growth in the medium term, they are unlikely to improve competitiveness or drive innovation on their own. The lack of clarity on when and how these funds will be deployed, along with ongoing internal disagreements over spending priorities, could limit their effectiveness. Meanwhile, longer-term challenges such as unresolved trade tensions and geopolitical shifts—particularly involving China and the war in Ukraine—add further uncertainty. In this context, April’s positive Ifo reading should be seen more as a brief pause in a difficult period than the beginning of a recovery.

We expect that Germany will remain mired in stagnation throughout 2025, as limited structural reforms, geopolitical uncertainty, and delayed fiscal stimulus continue to weigh on growth and business confidence.