Developed world output growth hits lowest point since 2023 as confidence slumps

Business output in the G4 economies — eurozone, Japan, the UK and US — increased at the slowest pace since December 2023, according to the latest flash Purchasing Managers' Index data compiled by S&P Global Market Intelligence.

Output was nearly stagnant or declined across all four major economies. The outlook for future growth also darkened as business optimism fell sharply, bringing prospects to their lowest since late 2022 and the second lowest since the COVID-19 pandemic, with companies citing growing concerns over geopolitical uncertainty and tariff policies.

Price pressures varied, with notable upturns for US manufacturing costs and UK selling prices, which need monitoring in case sticky inflation returns and limits central banks' ability to ease monetary policy.

G4 output growth lowest since 2023

The Composite PMI Output Index from the G4 economies, a GDP-weighted measure for goods and services, fell to 50.7 in April from 52.2 in March, according to the preliminary flash reading. While this still indicates ongoing output expansion, the growth rate was the weakest since December 2023.

Service sector activity, which had been growing at its strongest rate in a year and a half at the end of 2024, in April slowed to its weakest rate since December 2023.

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Manufacturing output in the G4 was unchanged in April, maintaining a flat growth trend seen in the first quarter. This flat trend year to date represents an improvement over the marked decline in factory output during the second half of 2024.

The diverging trends in manufacturing and services are partly explained by temporary tariff front-running in the goods-producing sector, as factories, notably in the US and eurozone, build stock or ship items before potential higher levies. Positive developments in April, therefore, appear to be temporary.

UK experiences worst performance among G4

UK output in goods and services declined for the first time in a year and a half at the sharpest rate since November 2022. Growth nearly stalled in the eurozone, marking the weakest gain this year. Modest growth occurred in the US and Japan, with the latter notching a slight recovery from March's decline. US expansion was its weakest since December 2023.

Confidence slumps across the board

The near-term outlook showed a broad deterioration in future output expectations. Business optimism across the G4 for the year ahead sank to its lowest since October 2022, when central banks were aggressively hiking interest rates and the UK government under then-Prime Minister Liz Truss faced a crisis of confidence.

Output expectations fell in manufacturing and services across all G4 economies, with companies increasingly concerned about domestic and global economic outlooks, due to geopolitical uncertainty and recent US tariff and global protectionism announcements.

In April, sentiment in the UK slid to its lowest since October 2022, followed by steep declines in the eurozone and US, reaching their lowest since November 2022 and October 2022, respectively.

Although Japan's monthly confidence drop was more modest, it brought optimism to its lowest since August 2020.

US, UK see upward price pressures

Tariff announcements were linked to a sharp rise in US manufacturing input costs, with inflation reaching its highest since August 2022. Conversely, lower energy prices and supplier discounts reduced manufacturing input costs in the eurozone and eased the rate of increase in Japan.

However, higher staffing costs, linked to recent government policy changes, drove up costs for goods and services in the UK and prompted a steep rise in UK service sector selling prices. More moderate service selling price rates were observed in other G4 economies, though they edged higher in the US and Japan.

Going forward, these price gauges will be crucial metrics as central banks assess their ability to support economic growth and labor markets. Caution may prevail as policymakers aim to avoid being caught off guard by persistent inflation.

Purchasing Managers' Index data is compiled by S&P Global for more than 40 economies worldwide. The monthly data is derived from surveys of senior executives at private sector companies and is available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and subindexes, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data is used by financial and corporate professionals to better understand where economies and markets are headed and to uncover opportunities.

Data and insights for this article were compiled by Chris Williamson, chief business economist for S&P Global Market Intelligence.