Business activity across the Eurozone moved into contraction territory in April, while price pressures continued to intensify, according to new analysis from ING.
The bank said the flash composite Purchasing Managers' Index fell to 48.6, dropping below the 50-point threshold that separates growth from contraction for the first time in 16 months.
The slowdown was led by the services sector, where the activity index declined to 47.4, its lowest level in 62 months. Manufacturing, however, showed resilience, with the PMI rising to 52.2 and exceeding market expectations.
Peter Vanden Houte said stronger manufacturing output may reflect companies building inventories amid fears of supply shortages linked to the ongoing Middle East conflict.
© Olha Khomenko | Dreamstime
According to the report, while total new orders fell for a second consecutive month, manufacturing new orders rose at their fastest pace in four years.
At the same time, inflationary pressures accelerated. ING said input costs increased at the fastest rate since 2022, while output price inflation reached a 37-month high.
The combination of weakening growth and rising prices points to growing stagflationary risks for the region.
The findings are significant ahead of the next meeting of the European Central Bank. ING said an immediate interest rate increase in April remains unlikely, but the latest data may increase the probability of tighter monetary policy later in the year.
The analysis noted comments from ECB President Christine Lagarde, who recently said policymakers would need more information before making firm decisions due to uncertainty over the duration and impact of current shocks.
However, ING warned that second-round inflation effects are already beginning to emerge despite slowing growth, which could prompt the ECB to raise rates later in 2026 to prevent inflation expectations from becoming entrenched.
For retailers and manufacturers, the data suggests a more difficult operating environment ahead, with softer demand, higher input costs and continued uncertainty across supply chains.
More information:
ING
www.think.ing.com
