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Asia’s service strength lifts PMI, but global stagnation spreads as Eurozone and UK slide deeper
Fresh PMI data from April revealed a widening global divergence: Japan and Australia saw modest service-driven growth, while the Eurozone teetered on stagnation and the UK economy slipped into contraction — fueling speculation of policy easing in both Frankfurt and London as trade tensions and inflation risks mount.
Japan and Australia posted modest growth in April, driven by service sector strength, but inflation risks are rising.
Eurozone activity slowed to near-stagnation as services contracted despite tariff-resilient manufacturing.
UK private sector plunged into contraction, fueling speculation of a Bank of England rate cut in May.
Global business activity painted a mixed picture in April, with key PMI figures revealing regional divergence amid mounting geopolitical and trade uncertainties. While Asia’s private sector saw mild improvement driven by services, the Eurozone economy slowed to a crawl, and the UK economy contracted at its steepest pace since 2022. Across all regions, central banks now face mounting pressure to respond — either to fragile growth or resurgent cost pressures amplified by the global tariff storm.
Japan and Australia: services steady the ship
In Asia, the latest PMI data signaled resilience, especially in domestic-facing sectors. Japan's Composite PMI rose to 51.1, up from 48.9 in March, marking a return to growth territory. The expansion was fueled by a sharp rebound in services (52.2), even as manufacturing remained in contraction (48.5). However, optimism fell to a post-COVID low, and inflationary pressures — especially input costs — surged to two-year highs, forcing companies to raise prices.
Australia’s Composite PMI, meanwhile, dipped slightly to 51.4 from 51.6. Services and manufacturing both saw mild slowdowns, though domestic demand supported hiring activity. Rising export costs and FX-driven inflation were flagged by manufacturers, contributing to the highest selling price inflation in nine months.
Eurozone: services slip into contraction, manufacturing shrugs off tariffs
Europe’s story was one of stagnation. The Eurozone Composite PMI fell to 50.1, a four-month low, down from 50.9 in March. Notably, the services sector contracted for the first time in five months, with the index falling below the 50.0 threshold to 49.7. The drag from services more than offset a modest uptick in manufacturing, which rose to 48.7 — a 27-month high — despite the implementation of U.S. tariffs.
Manufacturers in the bloc appear relatively unbothered by the 10% general and 25% auto-specific U.S. tariffs. Falling energy prices and planned increases in defense spending helped cushion sentiment and output in heavy industry. However, overall business activity remained flat, with economists warning that the Eurozone has entered “stagnation territory.”
Encouragingly for the ECB, price data showed signs of easing. Service sector selling prices decelerated, while input costs in manufacturing declined for the first time in five months — suggesting some disinflation momentum.
Germany and France mirrored the regional pattern: stronger factory output, weaker service activity.
UK: broad-based downturn raises red flags for Bank of England
In stark contrast, the UK’s flash PMI data painted a bleaker picture. The Composite PMI plunged from 51.5 to 48.2 — the lowest level since January 2022. Services, which had held up in recent months, dropped sharply to 48.9, while manufacturing fell further to 44.0, a 20-month low.
The data points to a quarterly GDP contraction of around -0.3%. Business sentiment slumped to its weakest since late 2021, with concerns mounting over faltering exports and rising input costs. Higher staffing expenses, driven by recent changes to minimum wage and National Insurance, have further squeezed margins across sectors.
Markets are now pricing in a higher likelihood that the Bank of England will opt for a rate cut at its May meeting. The sharp contraction, alongside collapsing business confidence, has reignited concerns about a potential recession.
Fed policymakers tread cautiously amid global storm
Back in the U.S., recent comments from Fed Governor Adriana Kugler and Minneapolis Fed President Neel Kashkari highlighted the growing policy dilemma. Both officials acknowledged that tariffs and persistent inflation are complicating the outlook. Kugler emphasized the need to hold steady and monitor the data, warning that the inflationary effects of tariffs could be greater than previously estimated.
Kashkari underscored the risk of trying to manage rising inflation and slowing growth simultaneously, noting that waning investor confidence in U.S. assets — reflected in a weakening dollar and rising yields — adds further stress to the policy environment.
