Our Q2 2025 nowcasts highlight the resilience of the Eurozone and, to a lesser extent, France. Weaker exports (after their surge in Q1 in anticipation of the US trade tariffs) penalises our forecast in Q2. It’s the opposite for the US with the Atlanta Fed nowcast at +0.7% for Q2. However, US GDP growth is estimated to have slowed down; that of the Eurozone is expected to be more stable. Japan is not expected to emerge from the stagnation observed in Q1.
The composite PMI index was stable at 50.2 in June, remaining above the expansion threshold in the first half of the year. The upturn in the manufacturing index slowed but continued (+0.1 pt to 49.5). It was driven in particular by new orders, with the index back above the 50 threshold for the first time in three years. The services PMI is unchanged.
The decline in borrowing rates in the Eurozone resumed, except for investment loans. New investment loan rates (IRF > 5 years) to non-financial corporations in the eurozone remained stable in May 2025, at 3.67%, for the third consecutive month. By contrast, rates on new treasury loans (variable rate and IRF < 3 months) to corporates continued to fall (-25 bps m/m) to 3.38%. Rates on new loans for house purchases and loans for consumption to households also declined, but much more modestly (-2 bps m/m). They stood at 3.32% and 7.48%, respectively.
The IFO business climate continues to improve (+0.9 points in June compared to the previous month, to 88.4), supported by favourable economic prospects. The early measures taken by the Merz government (enhanced depreciation allowances for investments, an ambitious budget for public investment until 2025 and a commitment to reduce energy costs for businesses) are fuelling high expectations. These are also reflected in the PMI index, which is picking up in both the manufacturing and services sectors.
Business climate: improvement confirmed in construction. The business climate continues to be quite low, with 96 in June and in May (97 in March-April). The rebound was moderate in services (from 95 to 96, compared with 98 in April) while the index contracted from 97 to 96 in industry. The construction index has benefitted from a revival of activity in new construction since May 2025 and has thus returned to its long-term average (100) for the past two months (it had been below this average between September 2024 and April 2025).
Business climate: the improvement continues. The economic sentiment index has been improving for two months, reaching 98.6 in June (+0.2 points m/m). The indicator for industry remains weak but is back to its highest level in 13 months, with production and hiring expectations for the coming months improving. Industrial production rose year-on-year (+0.1%), the first increase since January 2023. In the services sector, the indicator rose sharply (+0.7 points).
Business climate: favourable, but slightly weaker. In June, the economic sentiment index remained above its long-term average and that of the Eurozone, but weakened for the second consecutive month (102; -1.4 points m/m). The indicator for industry fell by 1.2 points due to a deterioration in production and order books. Industrial companies' expectations for production in the coming months reached their lowest level since February 2021, reflecting a deterioration in the outlook.
Business sentiment improves in all sectors: The composite PMI index rises in June (+1.7 points, to 52), driven by both services (+1.9 points, to 52.8) and industry (+1.3 points, to 47.7). The trade agreement with the United States has reduced uncertainty among businesses, leading to the start of a recovery in export orders (+3 points, to 46.2).
Improvement in the ISM. The manufacturing ISM improved modestly (49.0, +0.5 pp) in June, with a notable jump in output (50.3, +4.9 pp), which entered expansion territory for the first time since February. The non-manufacturing ISM returned to growth territory (50.8, +0.9 pp) thanks to a rebound in activity and new orders. The CEO Economic Outlook declined again in Q2, reaching a five-year low (69.3, -14.7 points). The three components assessed (plans for capital investment, plans for U.S. employment, and expectations for sales) have all fallen.
Favourable developments for the business climate. The manufacturing PMI stood at 50.1 in June (+0.7 pp, the first expansion posted since May 2024) thanks to growth in output (51.2, +2.5 pp). The services sector also improved (51.7, +0.7 pp). In Q2, the Tankan business conditions survey remained stable overall (15) for both the manufacturing (7) and non-manufacturing (21) sectors, despite the issue of US tariffs.
Trade truce. The official PMI for the manufacturing sector has been in contraction territory since April, mainly due to the US-China trade war and worsening export prospects. However, the index rose slightly from 49 to 49.5 in May and 49.7 in June, following the agreement reached between Washington and Beijing (after discussions in London in early May and in Geneva in early June). The Caixin manufacturing PMI even rose above 50 in June (vs. 48.3 in May). In the services sector, the official PMI has been close to 50.3 for the past three months.
