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.
Our nowcasts for Q2 point to moderate growth in the Eurozone (+0.2% q/q) and France (+0.1% q/q). The Atlanta Fed's GDPNow suggests a rebound in US growth (+0.3% q/q) after the slight contraction in Q1.
The business climate is holding up. The composite PMI decreased (50.1) but remains in expansion area. The manufacturing index persists in negative territory but is getting better for the fourth month in a row. Expectations of activity in services fell sharply (53.1, the lowest level in five years).
The business climate remains fragile. The IFO index has been rising since the beginning of 2025, including in April (86.9, +0.2 pp m/m, historical average of 95.7). However, the economic outlook has darkened as a result of the trade tensions triggered by the protectionist shift in the United States. These tensions have now spread to the services sector (flash PMI down to 48.8 in April). Industry is showing signs of stabilisation, but the situation remains fragile.
Mixed business climate. A slight deterioration was noticeable in April (from 97 to 96), due to a decline in retail sales and a deterioration in construction activity to a new low. The manufacturing index benefited from a rebound in production, particularly in the aeronautics industry. Despite a slight improvement, the services index remains below its long-term average.
Business sentiment deteriorated sharply in April. Confidence in the services sector is at its lowest since October 2022, causing the economic sentiment index to plunge. Confidence in industry continues to deteriorate (-0.6pt m/m), also due to a decline in order-book levels.
Business sentiment remains buoyant. The European Commission's economic sentiment index has been rising for three months (103.8; +0.4 points m/m), driven by an improvement in industry (-4.2; +1.3 pt). Indices of production expectations for the months ahead and of stocks of finished products are improving.
Business climate is deteriorating: the services PMI (48.9) catch up the industrial PMI (45.4) in contraction territory in April, as does the composite PMI (48.2). The index of new export orders in the manufacturing sector (not taken into account in the calculation of the manufacturing PMI) plunges and approaches the lows reached during Covid.
A Downbeat Business Climate. The ISM Manufacturing index has declined for 4 consecutive months, and reached 48.6 in April (-0.2pp). Production, employment and new orders were all in contraction territory. The price-paid index (69.8) stood at its highest since 2022. Meanwhile, the ISM Non-Manufacturing index remained positive but slowed (50.8 in March vs. 54.1 in December 2024).
Services Driving Business Climate Up. Growth in activity resumed in April according to the Composite PMI (51.1, +2.2pp), supported by the Services PMI (52.2, +2.2pp). By contrast, the Manufacturing PMI remained in contraction territory (48.5, +0.1pp), penalized by the largest deterioration in new orders since February 2024.
Widespread deterioration. The official PMI for the manufacturing sector fell to 49 in April (from 50.5 in March) and the Caixin PMI fell to 50.4 (from 51.2 in March). The decline is widespread across all sub-components and heralds a significant slowdown in activity after the rebound in March. These are the immediate consequences of the new 145% tariffs imposed by the US on Chinese imports.
Our nowcasts for Q1 show moderate growth in the euro zone (+0.2% q/q) and in France (+0.1% q/q). The Atlanta Fed's GDPNow, on the other hand, suggests the risk of a significant slowdown in US growth in Q1. In other countries, our forecasts are for continued outperformance in Spain, rebounding growth in Italy and the UK, and moderate growth in Japan. In Germany, growth is likely to remain weak in Q1, with the upside risks associated with the next government taking office more likely to affect Q2. Chinese growth is exposed to downside risks.
The unemployment rate held steady at 6.2% in January, an all-time low. Declines are most marked in southern Europe and Ireland, while the unemployment rate is relatively stable in France and Germany. Negotiated wages rose by 4.1% y/y in Q4 2024, less than in Q3 (5.4% y/y) but still well ahead of inflation.
The IFO business climate index remained stable in February compared with January, at 85.2, and remains close to the low recorded in November (84.7). It is the situation of industry that is having the greatest impact. Industrial output, including construction, contracted again, by 0.7% q/q in Q4 (the 6th fall in 7 quarters). However, January's figures show a slight rebound (+0.6% month-on-month on the 3-month moving average).
Household confidence rebounded from 89 in December to 93 in February (95 in September, 100 on long-term average). The balance of opinion on past price trends, at -5 in February, reached its lowest level since July 2021. On the other hand, the balance of opinion on fears of unemployment rose again in February (+55, compared with +29 in September), fuelling the opportunity to save.
Intentions to make major purchases in the coming year are at their highest level since July 2021. This should enable private consumption to further buoy Italian growth. For the time being, hard data remains disappointing: new vehicle registrations are slowing (-3.3% 3m/3m in February), as are retail sales volumes (-0.4% 3m/3m in January).
