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.
Indicators of Q2 2025Business climate: a mixed bag.
The improvement is most marked in the euro zone, Japan and China, although it remains relative. In contrast, the deterioration is fairly marked in the UK and the US, where it is accompanied by growing uncertainty.
Household confidence: lacklustre, except in southern Europe.
Household confidence indices are struggling to improve in France, Germany and China, and are deteriorating sharply in Japan and the US (due to both observed and expected inflation). In southern Europe, the situation is more positive, with consumption expected to drive growth.
Labour market: situation still favourable.
The euro zone remains in positive territory, despite a notable cooling in France and Germany. China is also facing a deteriorating. Job creation continues in the US, but more ambivalent signals are emerging (rising unemployment). Wage tensions persist in the UK. In Japan, real wages are contracting as inflation accelerates.
Inflation: divergence widens.
Disinflation continues to spread in the euro zone, albeit gradually and in a scattered fashion (inflation below 1% y/y in France and above 2% in Germany and Spain). In Japan, on the other hand, inflation continues to rise and is expected to rebound in the UK. In the US, even more than observed inflation, it is the anticipation of its increase with the implementation of tariff hikes that could pose a problem. China entered into a slight deflation.
Monetary policies reflect diverging inflation trajectories.
The ECB cut its key rate by 25 bp in March and is set to cut it further in April and June, according to our current central scenario. Despite persistent inflation, the BoE is set to lower its rate by 25 bp per quarter in 2025 in order to support the economy. In the US, the Fed is likely to maintain the status quo throughout the year. According to our forecasts, the BoJ should carry out two 25 bp hikes in 2025.
Article completed on 14 March 2025
