The European Commission's business confidence index for April was 95.6, down from 96.2 in March. Industrial business confidence (-1.6) declined significantly. Inventory increased slightly and order book valuation deteriorated significantly. This means manufacturing activity could still be weak for several months. No wonder employment expectations have softened again. Even if rising tensions in the Middle East have had a negative impact on ratings, the overall situation in the manufacturing industry remains quite severe. Capacity utilization (78.9%) fell to its lowest level since 2020.
Confidence also declined in the retail sector (-0.8), construction sector (-0.4), and service sector (-0.4). However, the service sector's utilization rate rose to 90.2% from 89.9% in the first quarter. This is clearly above the long-term average (89%). The employment expectations index for all sectors fell to 101.8, but was still above the long-term average of 100.
Consumer confidence in April rose to -14.7 from -14.9 in March, marking the third consecutive increase. Both the assessment of financial health over the past 12 months and expectations for the next 12 months have increased. Lower inflation and higher nominal wages have certainly contributed to this. However, the labor market appears to be losing some of its vitality as job expectations rise.
GDP growth was likely to slow in the first quarter after two quarters of GDP contraction, but the second quarter got off to a soft start. Inventory adjustments are likely to end around the summer, and the economy is expected to continue to see a gradual recovery as real disposable income increases on the back of falling inflation and stimulates household consumption.
