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.
Household confidence rises slightly
Household confidence improved in May (+0.9 points m/m, to -19.9) but remains relatively depressed. On the one hand, sentiment regarding the economic outlook improved, reaching a two-year high of 13.1 points (+5.9 points m/m). On the other hand, caution persists, given the decline in spending intentions (after a rebound in the previous month) and the increase in the propensity to save.
Labor market: stabilization
The unemployment rate remained stable at 3.6% in April, having reached 3% in the first half of 2023 (the previous low). After three consecutive quarters of net job losses since Q3 2024, mainly in the manufacturing industry, employment picked up slightly in April. The IAB barometer improved slightly, reflecting the slightly more favorable business climate for employment.
Gradual disinflation
Inflation (harmonized index) stood at 2.1% y/y in May (preliminary estimate), compared with 2.8% in January 2025. Energy prices continued to fall, while inflation in services declined (-0.5 ppt to 3.4%), leading to a decline in core inflation (-0.1 ppt to 2.8%). Inflation is expected to stabilize in the coming months and average 2.3% for 2025.
Revision of first-quarter growth
Growth in Q1 2025 has been revised upward to +0.4% q/q (previously +0.2%), supported by household consumption and a significant rebound in exports (+3.2%, after -3.1% q/q in Q4 2024). This revision is explained by an exceptional month of March, supported by an influx of exports ahead of the tariff increases announced by the Trump administration, as well as by military equipment deliveries. This is therefore a one-off boost to growth and a backlash is to be expected in Q2 2025 (we forecast 0.1% q/q).
