Eurozone April PMIs: Headline stronger than expected, but details signal economic weakness

The eurozone composite PMI rose to 55.8 in April, up from 54.9 in March. The outcome was higher than the consensus and our own expectations. The details of the report show a large difference between the manufacturing PMI (down to 55.3 in April, from 56.5 in March) and the services PMI (up to 57.7 in April, from 55.6 in March). Still, the forward-looking components and detail of the report indicate more weakness than the headline numbers suggest. Indeed, the component gauging the level of manufacturing output fell from 53.1 in March to 50.4 in April, a level consistent with stagnation. Also, the new export orders component of the manufacturing PMI dropped to below the 50 boom-bust level in April, indicating that further weakness in activity lies ahead.

The services PMI has been much stronger in March-April than the manufacturing PMI (rising by more than two points during the two months combined), as the services sector is benefitting from post-COVID rebounds in leisure and holiday related services. However, the expectations component of the services PMI dropped sharply lower in March-April (by almost seven points in total), indicating that growth will ease in the months ahead. All in all, the eurozone economy is expected to grow only a bit above the trend rate this year, despite a post-COVID rebound in certain parts of services. We expect GDP growth to be weak in Q1 (when there were still restrictions related to COVID) and to pick up to somewhat above the trend rate (i.e. 0.5-0.6% qoq) during the rest of this year.