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).
Household confidence decreased
It reached its lowest level since November 2023 in April. All sub-components have deteriorated. One-year inflation expectations rose in a contained manner (2.9%, source ECB). Consumption remains fragile: retail sales rose by 0.3% m/m in February, after three months of stagnation. New vehicle registrations are down (-0.9% y/y in March).
Good performance of the labour market
The unemployment rate reached a historic low of 6.1% in February, a result driven by the decline in Italy and Spain. Although in negative area, the employment PMI index did not drop (49.9). Indeed, indices show a slowdown in wages in Q1 (+2.7% y/y), confirmed by the ECB's wage tracker, whose leading index fell to 1.6% at the end of 2025.
Inflationary dynamics remain favourable
Inflation, however, held steady at 2.2% in April, and services inflation rebounded to 3.9% y/y. The trend is expected to remain towards disinflation thereafter, in particular due to the appreciation of euro and the slowdown in wages. This should allow the ECB to continue its rate cuts (June and July according to our estimates).
An increase in growth for Q1, but not in Q2?
Growth in Q1 2025 was higher than expected (+0.4% q/q vs. 0.3% q/q), driven by Spain and Ireland. The latter's GDP being highly volatile from one quarter to the next. The nowcast for Q2 currently stands at 0.2% q/q, at the same level as our forecast. While growth is expected to be lower in the coming quarters – held back by trade tensions – it is nevertheless expected to improve slightly throughout the year 2025 compared to 2024.
Article completed on 2 May 2025
