Economists at Societe Generale note that business and consumer confidence fell more than expected in April, with Commission indicators reaching their lowest levels in many years. Despite slightly positive gross domestic product (GDP) for the first quarter, domestic demand appears subdued and lending conditions are tightening. They see well balance sheets and artificial intelligence, energy and defense investments as potential buffers against a sharper slowdown.
Confidence falls as lending conditions tighten
“On the upside, business and consumer confidence continued to decline more than expected in April, with the Commission’s economic confidence falling to a five-year low and consumer confidence falling to a three-year low.”
“However, the weakening in confidence was not fully reflected in the preliminary Q1 GDP data, which showed that euro area GDP grew slightly less than expected, by 0.1% q-o-q, with growth in Germany (0.3%), Spain (0.6%) and Italy (0.2%). In contrast, growth has stagnated in France, while in the rest of the euro area it appears to be slowing compared to Q4 2025 (with Irish GDP falling by 2% q/q).”
“The question now is to what extent we can expect weakening confidence to pass on to domestic demand, or whether we could demonstrate greater resilience in action, as was the case in 2022. Household and business balance sheets remain well, so there is a buffer to draw on if needed. Additionally, we believe that investment dynamics in AI and energy remain positive, supported by increased defense spending and the German fiscal stimulus.”
“The final PMIs should confirm the weakening dynamics in April, particularly in services, while retail sales may show a further decline in March, with retail sales in Germany falling by 2% monthly.”
“In Germany, factory orders, industrial production and trade data for March may point to moderate growth, with the outlook worsened by the energy price shock, while industrial production in France may see a short-term rebound.”
(This article was created with the assist of an artificial intelligence tool and has been reviewed by an editor.)
