The economic sentiment indicator (ESI) in the Euro Area declined to 93.6 in April 2025, down from a revised 95.0 in March and falling short of market expectations of 94.5. This marked the lowest reading since December 2024, underscoring persistent economic fragility across the region. The decline was broad-based, with sentiment weakening across nearly all major sectors, suggesting growing concern about the sustainability of the recovery amid external uncertainties and domestic pressures.
Eurozone economic sentiment weaker than expected
Consumer confidence saw the steepest deterioration, dropping sharply to -16.7 from -14.5 in the previous month. The fall reflects mounting anxieties over household finances, job prospects, and inflation, particularly as geopolitical tensions and tighter monetary conditions continue to weigh on purchasing power. In the services sector—traditionally more resilient—confidence eased to 1.4 from 2.2, pointing to fading momentum in what has been a key driver of post-pandemic growth.
Meanwhile, confidence among retailers and manufacturers also declined, with retail sentiment falling to -8.9 (from -7.0) and manufacturing sentiment slipping to -11.2 (from -10.7). These drops likely reflect weakening demand and ongoing supply chain challenges, as well as elevated borrowing costs that are curbing business investment and consumer spending. Construction sentiment also deteriorated to -4.3 from -3.7, continuing a downward trend amid high material costs and sluggish permitting activity across several member states.
Mixed signals on inflation
On the inflation front, mixed signals emerged. Consumer inflation expectations jumped by 5.1 points to 29.6, reaching their highest level since November 2022. The sharp rise indicates lingering concern among households that price pressures—especially on food, energy, and rents—may persist longer than previously hoped. In contrast, manufacturers’ selling price expectations edged down slightly by 0.3 points to 11.0, easing from March’s two-year high and suggesting that cost pass-throughs from businesses may be starting to moderate.
At the national level, sentiment diverged across the Eurozone’s largest economies. The Netherlands saw the largest monthly drop (-2.5 points), followed by Italy (-1.8), as both economies grapple with weak consumer demand and fragile industrial activity. In contrast, Germany and Spain posted slight improvements (+0.5 and +0.4, respectively), possibly reflecting stabilization in energy markets and marginal gains in industrial orders. France’s sentiment remained largely unchanged, indicating stagnation rather than clear direction.
What ESI says
Overall, the latest ESI reading paints a cautious picture of the Eurozone economy heading into the second quarter, with confidence under pressure amid persistent inflation, uneven growth prospects, and a lack of clear policy signals from the European Central Bank. Investors and policymakers will now be watching closely for signs of either stabilization or further deterioration in the coming months.
