Rising energy prices and falling services demand deepen economic strain, complicating ECB’s rate path

Eurozone business activity unexpectedly slipped into contraction in April, as surging costs linked to the Middle East conflict dented demand and clouded the economic outlook, according to a closely watched survey released on Thursday.

The S&P Global Flash Eurozone Composite Purchasing Managers’ Index fell to 48.6 in April from 50.7 in March, dropping below the 50 mark that separates growth from contraction and missing market expectations of a milder dip.

The downturn was largely driven by the services sector, where demand weakened sharply. The services PMI fell to 47.4 from 50.2, with new business declining at its fastest pace since October 2023. The data signals growing consumer caution as inflationary pressures intensify.

STORY CONTINUES BELOW THIS AD

In contrast, manufacturing activity showed resilience. The manufacturing PMI rose to 52.2, beating expectations and indicating continued expansion. However, factories faced a sharp surge in input costs, with the manufacturing input price index jumping to 76.9, reflecting rising energy and supply chain pressures.

The escalation of the US-Israeli conflict with Iran has pushed fuel prices significantly higher over the past two months, feeding into broader inflation. The overall input price index climbed to its highest level since late 2022, underscoring mounting cost pressures across the bloc.

The data presents a complex challenge for the European Central Bank, as policymakers weigh the need to contain inflation against the risk of a deeper economic slowdown. Financial markets are now pricing in multiple rate hikes this year, with expectations of tightening beginning as early as June.

Economists warn that persistent supply disruptions and elevated costs could further weaken growth in the coming months, leaving the eurozone economy increasingly vulnerable.

First Published:
April 23, 2026, 14:24 IST

HomeBusinessEurozone slips back into contraction amid war-driven inflation spike, PMI showsEnd of Article