Weak PMI and sentiment data signal slowing eurozone growth, driven by softer services activity, declining business confidence, rising cost pressures, amid the ongoing geopolitical tensions.
The euro was firmer against the U.S. dollar during the early New York session on Tuesday, although it trimmed its gains following the release of disappointing private sector activity and economic sentiment readings.
The muted reaction apparently suggests the market is currently less sensitive to European data and is potentially more focused on the broader global macro trends.
What PMI Signals: The eurozone private sector activity slowed in March, with the pace of expansion slowest in nine months, the final reading compiled based on S&P Global’s survey showed. The eurozone composite PMI fell to 50.7 in March from 51.9 in February, although it was slightly above the consensus of 50.5. The index was well below its historical average of 52.4.
Eurozone Composite PMI
Source: S&P Global
The slowdown was primarily attributed to weakness in the services sector. The corresponding PMI slipped to a 10-month low of 50.2 from February’s 51.9. On the other hand, manufacturing output growth remained solid.
S&P Global noted that the March total new business intakes declined across the eurozone, dragged by the lower orders received by services companies. New export orders, which also included intra-eurozone trade, deteriorated in March. Incidentally, the order backlogs declined further. Private sector employment fell slightly after two straight months of fairly flat performance.
The future looked dim, with optimism regarding business outlook falling for the first time since December.
S&P Global Market Intelligence Chief Business Economist Chris Williamson said, “March’s PMI indicates that the eurozone economy has already been hit hard by the war in the Middle East.” The U.S., along with Israel, has engaged with Iran since February 28, and the conflict has now lasted 39 days. U.S. President Donald Trump has given a Tuesday deadline for all hostilities to end and for the Strait of Hormuz, a major oil chokepoint, to be reopened.
Among the major economies in the region, Spain saw accelerating factory activity and Germany, the region’s biggest economy, expanded, albeit at a slower pace than in February. On the other hand, private sector activity contracted in France and Italy.
Composite PMI for Major Eurozone Economies
Source: S&P Global
Cost pressures in the services sector intensified to a 34-month high in March.
Sentix Sentiment Plunges: The Sentix economic index for the eurozone plummeted 16.1 points to -19.2 in April, marking the lowest level since April last year. Economists expected a more modest worsening to -7.5. The weakness was attributed to a collapse in economic expectations, which plunged 19 points from +3.5 in March. The current situation index also fell sharply to -22.8 from -9.5.
“Immediately after the outbreak of the Iran War, an initial shock reaction was already evident in the ‘first mover’ at the beginning of March,” said Sentix Managing Director Patrick Hussy.
The Sentix ‘Inflation’ barometer showed a significant surge in inflation concerns, falling to -49.5 from -35, with the main drivers being the considerable disruptions in the energy markets and the sharp rise in oil prices.
Sentix Inflation Barometer
Source: Sentix
The German economy, which was cruising along fairly well, suffered a setback in April. The economic sentiment index for the country fell to a one-year low of -27.7 from -12.1 in March. The current situation index, at -38, was in recessionary territory. The expectations index fell to -16.8, the lowest since September 2024.
Euro Trims Gains But Holds Up: The Euro Forex futures have been rangebound between 1.147 and 1.21 since June 2025. On Tuesday, the contract was trading 0.13% higher at 1.156, just above the lower bound of the range.
Euro Futures (1-Year Chart)
Source: TradingView
ING Forex Strategist Chris Turner expects the euro to remain under pressure near 1.1500/1.510 in the current uncertain environment. The strategist noted that the odds of a 25 basis-point rate hike in April have dropped to under 50% now, although a 75 bps hike is still priced in for the year. If the European Central Bank ignores potentially high energy prices and does not hike rates on April 30, the euro will take a hit, he added.