Europe Chart Of The Week: The myth of the insulated services sector

Research evidence excerpt

Europe Chart Of The Week: The myth of the insulated services sector

Deutsche Bank

Research

Economics Date

Europe Chart Of The Week 28 May 2026

The myth of the insulated services sector

Yacine Rouimi

The conventional view is that Europe’s services sector is driven by domestic Senior Economist

forces. However, the recent, sharp drop in services PMIs – outpacing the decline +44-20-754-71014

in the externally-focused manufacturing sector – challenges this simple view.

Mark Wall

Part of this weakness is an unsurprising reflection of the domestic real income Chief Economist

shock. But we argue this weakness goes beyond the domestic story. This Chart +44-20-754-52087

of the Week shows that the Eurozone economies where services have weakened

Clemente Delucia

most are those with the highest exposure to external demand, revealing a key, Senior Economist

underappreciated vulnerability. +39-02-402-43012

Maria Contreras

The basic assumption is that Europe’s manufacturing sector is open to Economist

international trade, while its services sector is more reflective of domestic forces. +44-20-754-74120

The recent survey data (details here and here), however, presents a puzzle: the

Michael Kirker former appears to be holding up better than the latter. What gives? Economist

+44-20-754-72237

While we are cautious about assuming this manufacturing resilience will hold –

the S&P press release notes evidence of "safety stock building", something which Kuhumita Bhattacharya

we think can only provide temporary support – the simple manufacturing/services Research Associate

dichotomy appears oversimplified. While some services are purely domestic,

others are traded internationally or are byproducts of trade in goods. The purpose Hema Kumari

Research Associate