Societe Generale economists note that firm and consumer confidence fell more than expected in April, with Commission indices at multi‑year lows. Despite slightly positive 1Q Gross Domestic Product (GDP), domestic demand appears subdued and credit conditions are tightening. They see healthy balance sheets and AI (Artificial intelligence), energy and defence investment as potential buffers against a sharper slowdown.

Confidence slumps as credit conditions tighten

"Concerning for growth is that firm and consumer confidence kept dropping more than expected in April, with the Commission’s Economic Confidence dropping to a 5-year low and consumer confidence to a 3-year low."

"However, weakening confidence was not fully reflected in the preliminary1Q GDP data, which saw the euro area GDP rise slightly less than expected, by 0.1% qoq, with growth in Germany (0.3%), Spain (0.6%) and Italy (0.2%). In France, in contrast, growth stagnated, while growth in the rest of the euro area looks to have decelerated compared with 4Q25 (with Irish GDP contracting by 2% qoq)."

"The question now is to what extent we can expect the weakening confidence to spill over into domestic demand or whether we could have more resilience in activity, as was the case in 2022. Household and corporate balance sheets remain healthy so there is a buffer to take from if needed. In addition, we believe the momentum for AI and energy investments remain positive, helped by increased defence spending and the German fiscal stimulus."

"The final PMIs should confirm the weakening momentum in April, especially in services, while retail sales in March could show another contraction, with German retail sales dropping by 2% mom."

"In Germany, factory orders, industrial production and trade data for March may point to modest growth, with the outlook weighed down by the energy price shock, while industrial production in France could see a short-lived rebound."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)