Our nowcasts for Q2 2025 deliver a positive message, with significant growth in the Eurozone (+0.3% q/q, after a very solid Q1 at 0.6% q/q), accelerating in France (+0.2% q/q) and rebounding in the United States. For the latter, the Atlanta Federal Reserve's GDPNow (+0.9% q/q) shows a strong improvement due to the highly atypical profile of imports.
Stabilisation in manufacturing, deterioration in services. The manufacturing PMI continues to improve in May, rising above the services index for the first time since March 2022. The composite indicator fell back below 50. The European Commission's economic sentiment index climbed in May (+1 pt to 94.8) but remains well below its long-term average (100).
Business climate: better prospects. According to the Ifo survey, the business climate continued to improve in May (+0.6 points m/m to 87.5), driven by the improvement in the economic outlook (+1.5 points). The services index declined for the second consecutive month, while the manufacturing sector continued to show signs of improvement. Nevertheless, the index remains below its long-term average (95.6), signaling a fragile recovery amid high uncertainty.
Business climate slightly down. The deterioration was slight in May (from 97 to 96). The more pronounced decline in industry and services was offset by a slight improvement in construction and retail trade. The composite index remained in a corridor between 95 and 98 over the last three quarters, consistent with a weak, but positive growth.
A slow improvement. The business climate indices improved slightly in May for all sectors (industry, services, retail, construction). The economic sentiment index is close to its long-term average (+2.8 points to 98.6). Industrial production recorded a modest rise in Q1 (+0.5% q/q), putting an end to five consecutive quarters of contraction.
Spanish outperformance. Business sentiment contracted by 0.4 points in May, but remains above its long-term average and Eeurozone’s (94.8). The industrial indicator dropped by 0.8 points, after 3 months of improvement, but also remained above the European average (at -10.3). While the export orders index improved, those for production and employment weakened slightly.
Industry stalls, services resist. The May PMI flash estimate for services returns in expansion territory (50.2). However, the flash composite index remains below this threshold (49.4) due to a deterioration in industry (-0.3 points to 45.1). Industrial production fell by 0.7% m/m in April.
Bad Signs For The Business Climate. The ISM manufacturing index fell for a fourth consecutive month in May, to 48.5 (-0.2pp). Trade tensions were reflected in the slowdown in supplier deliveries (56.1, +3.9pp inverted indicator) and the contraction in inventories (46.7, -4.1pp). Most notably, imports reached their lowest since 2009 (39.9, -7.2pp) and new export orders their lowest since spring 2020 (40.1, -3.0pp). The ISM non-manufacturing index contracted (49.9, -1.7pp) on the back of the fall in new orders (46,4, -5.9pp).
Poor trend in business surveys. According to the May JibunBank survey, the Composite PMI moved into contraction at 49.8 (-1.4pp). The slight rise in the manufacturing PMI – still in contraction territory at 49.0 (+0.3pp) -– was not enough to offset the steep decline in the services PMI (50.8, -1.6pp).
Fragility of the manufacturing sector. The official manufacturing PMI improved slightly in May (to 49.5 from 49 in April) but remained in contraction territory. The Caixin manufacturing PMI fell sharply from 50.4 in April to 48.3 in May, its lowest level since September 2022. Caixin covers a smaller sample of companies than the NBS but includes more private-sector SMEs. These are particularly vulnerable to US tariff policy and the deterioration in export prospects.
