Global Economy, Monthly Review and Outlook | July 2025

Global Economic Review: June 2025

June 2025 revealed a global economy grappling with uneven growth, shifting inflation trends, diverging central bank policies, and heightened geopolitical and political uncertainties. Disinflation progressed in key regions, yet sticky price pressures and persistent trade tensions kept risks elevated.

Geopolitical Tensions: June 2025 Review

June saw a notable escalation of geopolitical tensions across several regions, amplifying risks for global markets, trade flows, and economic stability.

Middle East Volatility

The month began with renewed hostilities in the Middle East. Israel launched a war against Iran on June 13, later joined by the U.S., with airstrikes on Iranian nuclear facilities, significantly increasing military risks. Although a ceasefire began on June 25, Iran’s parliament unanimously voted to suspend all cooperation with the IAEA, the UN’s nuclear inspectorate, making independent assessments of the damage to Iran’s nuclear sites impossible. This decision signals Iran’s intent to adopt a more hardline line in negotiations with the West following 12 days of attacks by Israel and the U.S., which European governments supported with varying enthusiasm, keeping regional risk levels elevated.

U.S.-China Trade Frictions

Despite a late-June trade deal that eased some tensions, U.S.-China relations remained strained. Disputes continued over technology restrictions, cybersecurity concerns, and tariffs. June 9 trade talks in London resulted in a partial easing of recently imposed measures, with both sides agreeing on limited concessions for rare earth exports and educational exchanges. However, tensions persist, casting a shadow over markets. These events highlight how trade policy decisions can disrupt supply chains, impact global growth forecasts, and strain diplomatic relations.

A brief overview of the world's major economies

The global economy in mid-2025 continues to grapple with uneven growth, shifting inflation dynamics, and diverging monetary policies across advanced and emerging economies. The U.S. economy shows signs of cooling momentum: Q1 GDP contracted by 0.5% QoQ, consumer spending slowed, and housing markets weakened with sharp drops in new home sales and building permits. Yet inflation remains sticky, with core PCE rising 2.7% YoY, complicating the Federal Reserve’s policy path even as markets price in potential rate cuts later in the year.

In the Eurozone, economic activity shows modest resilience. Q1 GDP accelerated to 0.6% QoQ, and recent PMIs suggest tentative stabilization, with the composite index holding near 50. However, industrial production contracted sharply in April, and the trade surplus narrowed substantially, highlighting external demand risks. Inflation cooled, with Eurozone headline CPI easing to 1.9% YoY in May, reinforcing expectations that the ECB’s June rate cut could mark the start of a cautious easing cycle.

The UK economy remains fragile. GDP shrank 0.3% MoM in April, and retail sales posted their steepest drop over two years. PMIs show services expanding modestly but manufacturing and construction are still contracting. Inflation pressures eased slightly, with headline CPI cooling to 3.4% YoY. However, stubborn wage growth and a split vote in the BoE’s June meeting underscore uncertainty around the timing of potential rate cuts.

Japan’s recovery shows mixed signals. Industrial production fell 1.1% MoM in April, and household spending dipped sharply. Yet manufacturing PMIs improved into expansion at 50.4 in June, and services activity strengthened. Inflation remains persistent, with core CPI holding at 2.5% and Tokyo inflation easing but still elevated at 3.1% YoY. The Bank of Japan continues to tread carefully, balancing price stability with weak consumption and mixed forward indicators.

China’s economy remains under pressure despite bright spots. Manufacturing contracted again with a PMI of 48.3 in May, while services PMIs edged higher. Retail sales outperformed expectations, surging 6.4% YoY, and the urban unemployment rate eased to 5.0%. However, persistent deflationary pressures are evident in CPI and PPI data, and credit growth slowed markedly in May, reflecting muted confidence among businesses. Housing markets remain soft despite some stabilization in price declines, and policymakers continue to signal targeted support while maintaining accommodative rates.

Emerging markets present a diverse picture. India’s economy showed robust momentum with PMIs surging in June and wholesale inflation cooling sharply. Brazil’s economy weakened with manufacturing in contraction and widening external deficits, even as inflation eased slightly. South Africa’s data reflected a fragile recovery, with manufacturing fluctuating between contraction and expansion, while unemployment improved to its lowest since the pandemic. Turkey grapples with persistent inflation and currency pressures, though consumer spending remains resilient. Mexico’s economic indicators show slowing activity, prompting Banxico to cut rates again.

US Economy, June Review and July Outlook

Deeper Review of the US Economy – June 2025

June’s economic indicators presented a mixed but increasingly cautionary picture of the U.S. economy. Manufacturing activity offered conflicting signals: the S&P Global Manufacturing PMI rose to 52.0 in May, indicating moderate factory expansion, while the ISM Manufacturing PMI fell to 48.5, signaling continued contraction. Regional surveys showed divergence as the Kansas City Fed Manufacturing Index rebounded to +5, suggesting localized improvements, but the Philadelphia Fed Manufacturing Index remained stuck at –4.0, highlighting ongoing weakness in other regions. Meanwhile, durable goods orders surged 16.4% MoM in May, boosted by volatile aircraft orders, yet core figures excluding transportation rose just 0.5%, reflecting tepid underlying capital investment demand.

The services sector also painted a complex picture. The ISM Non-Manufacturing PMI dipped to 49.9, indicating near-stagnation as new orders fell sharply. However, the S&P Global Services PMI climbed to 53.7, signaling robust service activity growth, while the Composite PMI reached 53.0 in May, driven largely by strength in business services. Overall, the data suggested momentum in services, but with early signs of cooling demand.

Housing data underscored persistent challenges. New home sales plunged 13.7% in May, the steepest monthly drop since 2022, while building permits fell 2.0% and housing starts tumbled 9.8%—together indicating a weakening outlook for construction. The FHFA House Price Index posted its first monthly decline since 2023, with prices down 0.4% MoM in April and year-over-year growth slowing to 3.0%. Mortgage rates eased slightly to 6.84%, yet mortgage applications and purchase demand remained subdued, reflecting continued affordability pressures on buyers.

Consumer data revealed signs of growing caution. Redbook retail sales growth slowed from 5.2% to 4.5% YoY, indicating softening consumer spending momentum. While the University of Michigan’s Consumer Sentiment Index jumped to 60.5 in June—its highest reading in months—Conference Board Consumer Confidence plunged to 93.0, its lowest level since late 2022, highlighting concerns over inflation, job security, and geopolitical risks. Personal spending fell 0.1% MoM in May, and real personal consumption contracted 0.3%, the weakest since early 2022, suggesting headwinds for household demand.

Labor market data showed early signs of softening. ADP private payroll growth slowed dramatically to 37K jobs in May, well below the 111K forecast, while initial jobless claims hovered between 236K and 248K through June. Continuing claims crept higher, staying near 1.95 million, and Challenger job cuts dropped but remained elevated YoY, pointing to gradual cracks in employment stability. Nevertheless, JOLTS job openings surprised to the upside at 7.391 million, reflecting still-tight labor conditions despite cooling elsewhere.

Inflation data continued to reflect sticky price pressures. May’s Core PCE rose 0.2% MoM and accelerated to 2.7% YoY, above expectations, while headline PCE held at 2.3%. CPI showed modest monthly increases of 0.1% in both headline and core readings, but Core CPI remained elevated at 2.8% YoY. Producer prices also edged up 0.1% MoM in May, with Core PPI easing to 3.0% YoY, reflecting lingering disinflationary forces in supply chains.

GDP figures signaled clear deceleration. The final Q1 GDP estimate showed a contraction of –0.5% annualized, with final domestic sales plunging –3.1%. This weakness was exacerbated by a widening goods trade deficit, which grew to –$96.6 billion in May, reflecting rising imports and slowing exports. The U.S. current account deficit widened sharply to $450.2 billion in Q1 2025, the largest in years, underscoring growing external financing needs.

Financial markets showed signs of risk aversion amid geopolitical events and softening economic data. Treasury auctions across bills and notes saw falling yields, reflecting strong demand for government debt. Equities experienced heightened volatility, with sharp futures drops following Israeli airstrikes on Iran but ending June with gains of over 5% as inflation cooled. The Federal Reserve kept rates steady at 4.50% during its June meeting and projected gradual rate declines over the next two years, even as mixed data kept the timing of any cuts uncertain.

Together, June’s data points to a U.S. economy losing steam under the weight of persistent inflation, high borrowing costs, and softer consumer demand. While some manufacturing and services segments remain resilient, growing evidence of labor market cooling and weak housing activity suggests mounting headwinds as the second half of 2025 approaches.

Key US Economic Data to watch for July 2025

JOLTS Job Openings (July 1), June ISM Manufacturing and Services PMI (July 1& 3), June Nonfarm Payrolls (July 4), Weekly Jobless Claims (every Thursday), June CPI (July 11), June Retail Sales (July 16), Housing Starts & Building Permits (mid-July), University of Michigan Consumer Sentiment – Final (July 26), Conference Board Consumer Confidence (July 30), Q2 GDP Advance Estimate (July 31) and Finally, FOMC Meeting (July 30–31).

U.S. Economic Outlook – July 2025

The U.S. economy enters July with clear signs of slowing momentum and mounting headwinds across key sectors. June data showed weakening consumer spending, with retail sales and personal consumption both contracting, while consumer confidence dropped sharply according to the Conference Board survey, suggesting households are turning cautious amid sticky inflation and high borrowing costs.

Labor market indicators point to a gradual cooling: job growth slowed sharply (ADP at 37K vs. expectations of 111K), initial jobless claims have trended higher, and continuing claims remain elevated near 1.95 million. While job openings (JOLTS) surprised to the upside, this may not be enough to offset signs of softer hiring and rising layoffs. Together, these trends suggest employment gains could weaken further in July.

Manufacturing signals remain mixed: S&P Global PMIs suggest expansion, but ISM PMIs hover near or below the 50 thresholds, pointing to stagnation or mild contraction. Meanwhile, housing market data indicates ongoing stress, with new home sales plunging 13.7% in May and housing starts falling nearly 10%, factors that could weigh on construction activity into Q3.

On inflation, May’s Core PCE accelerated to 2.7% YoY, and core CPI held at 2.8% both above the Fed’s target, reinforcing uncertainty over the timing of any rate cuts. However, recent declines in energy and cooling producer prices hint at potential relief if trends persist.

GDP indicators paint a complicated picture: the final Q1 GDP showed a contraction of –0.5%, but the Atlanta Fed’s GDPNow model sees Q2 growth at 3.4%, reflecting stronger early-quarter momentum. Still, widening trade deficits and slowing consumption could dampen Q2 and Q3 growth prospects.

Markets are pricing in a ~70% chance of a September Fed rate cut, but July’s key data — including June CPI (July 11), jobs report (July 5), and the Q2 GDP advance estimate (July 31) will be decisive. Unless inflation cools meaningfully and labor market weakness deepens, the Fed may remain patient before easing policy.

Overall, the outlook for July points to a fragile expansion increasingly reliant on resilient services and slowing inflation, but facing risks from softening consumer demand, a cooling labor market, and geopolitical uncertainties. The second half of 2025 could see a sharper deceleration if these trends persist.

Wall Street and USD in July 2025

USD Outlook:

With signs of slowing consumer spending, a cooling labor market, and persistent inflation, the USD is caught between two competing forces.

If key July data (e.g., CPI on July 11, jobs report on July 4) show clear disinflation or worsening employment, markets will likely price a higher probability of a near-term Fed rate cut. Historically, that tends to weaken the USD, especially against currencies like the EUR and JPY. Conversely, if inflation remains sticky or jobs surprise to the upside, expectations for Fed easing could be delayed, supporting or even lifting the USD in the short term.

In past July periods during monetary policy pivots, the dollar has shown heightened volatility, often seeing ~2-4% swings against majors. For example, in July 2019 and July 2022 — both Fed policy transition periods — the USD experienced sharp moves as investors recalibrated rate expectations.

Wall Street Outlook:

U.S. equities enter July with a positive momentum tailwind: the S&P 500 rose over 5% in June, buoyed by cooling inflation hopes. But the market faces key risks. Weak consumer data could stoke recession fears, pressuring cyclical stocks, small caps, and sectors like retail and discretionary. Disinflation confirmation (e.g., softer CPI or PCE) could bolster tech and growth stocks, as lower rate expectations typically expand valuations.

Historical patterns show July has often been a strong month for Wall Street: since 1990, the S&P 500 has averaged a ~1% gain in July, with positive returns in ~60% of Julys, according to Dow Jones Market Data. This seasonal strength is often attributed to early Q2 earnings optimism and mid-year portfolio rebalancing.

However, political and geopolitical risks (Middle East tensions, U.S.-China trade uncertainty) could inject volatility, especially if combined with any upside surprises in inflation that rekindle rate hike fears.

Bottom Line Expectations:

If July data confirm cooling inflation + slowing growth, expect the USD to weaken modestly and equities (especially large-cap tech) to extend gains, consistent with "Fed pivot" rallies in past cycles. If inflation proves stickier and + labor market shows resilience, the USD could strengthen while equities tread water or pull back modestly, reflecting caution over prolonged high rates.

Volatility is likely to stay elevated into late July, especially ahead of the Q2 GDP release and FOMC meeting (July 31).

UK Economy, June Review and July Outlook

UK Economic Review – June 2025

June’s data revealed a UK economy grappling with stagnation, persistent inflation, fragile consumer spending, and a mixed housing market, all while the Bank of England (BoE) maintained a cautious stance on interest rates.

The housing sector offered conflicting signals. Nationwide reported a rebound in home prices, up 0.5% MoM and 3.5% YoY in May, highlighting pockets of strength. However, other indicators showed clear cooling: Halifax’s HPI slowed to 2.5% YoY with a 0.4% monthly drop, and the Rightmove index recorded a 0.3% MoM decline in June—the first in months—underscoring affordability challenges amid high mortgage rates. Meanwhile, mortgage approvals tumbled to 60.46K, missing forecasts, and net mortgage lending plunged into negative territory (–£0.76 bn), reflecting tightening credit conditions.

Housing weakness paralleled deepening strains in consumer activity. Retail sales posted their worst month in over two years, with core sales down 2.8% MoM and 1.3% YoY, while overall retail sales also slumped 2.7% MoM. CBI’s retail sentiment survey collapsed to 46 in June, among the weakest since the pandemic, highlighting broad-based declines across categories. Although GfK consumer confidence edged up slightly to 18, sentiment remained deeply negative.

Labor market data was equally mixed. Average earnings growth excluding bonuses cooled to 5.2% YoY, down from 5.5%, while the claimant count surged by 33.1K—far exceeding expectations—pointing to mounting employment pressures. The unemployment rate ticked up to 4.6%, suggesting early signs of slack.

On inflation, May’s CPI rose just 0.2% MoM, with core CPI steady at 3.5% YoY, showing some moderation. Headline CPI cooled slightly to 3.4% YoY, but still above the BoE’s target, and core RPI eased to 4.1% YoY. This suggests inflationary pressures remain elevated, albeit off their peaks, reinforcing the BoE’s decision to hold rates at 4.25% in June. The split 6-3 MPC vote, with three members favoring a 0.25% cut, revealed growing debate over the timing of policy easing.

Business activity showed tentative signs of recovery. The S&P Global Composite PMI rose to 50.7 in June, above forecasts and up from May’s 50.3, indicating a slight expansion. Manufacturing PMI improved to 47.7, still signaling contraction but at a slower pace. Services PMI climbed to 51.3, pointing to firmer momentum in the dominant services sector. However, the CBI Industrial Orders index deteriorated further to –33, reflecting a deepening downturn in factory orders amid weak global demand and Brexit-related trade frictions.

On broader growth, GDP contracted 0.3% MoM in April, the first monthly decline of 2025, with annual GDP growth slowing to 0.9%. Industrial production fell 0.6% MoM and manufacturing output dropped 0.9%, highlighting ongoing weakness in goods-producing sectors, while services output rose 0.6%, providing some offset. The trade deficit widened sharply to £23.21 bn, adding to concerns about external imbalances.

Credit and liquidity trends were also notable: consumer credit surged to £1.58 bn, well above forecasts, suggesting households increasingly rely on borrowing, while M3 and M4 money supply figures were flat or slightly negative, indicating tight monetary conditions. Meanwhile, a rise in gilt yields at the latest 5-year auction pointed to increased government borrowing costs.

Overall, June’s data highlight a UK economy teetering between stagnation and fragile growth, as households retrench under the weight of high borrowing costs and sticky inflation, while tentative improvements in PMIs offer only modest optimism. With the BoE maintaining a cautious stance amid persistent inflation and softening activity, upcoming data on inflation, labor markets, and consumer spending will be critical in determining whether rate cuts materialize later in 2025.

Key British data to watch in July 2025

PMIs (July 1 & 3), Trade data, GDP, Industrial Production & Manufacturing Output (July 11), Inflation Report (July 16), Labor Market data and Average Earnings Index (July 17), Consumer Confidence Surveys (e.g., GfK – mid-July), and finally, BoE Interest Rate Decision & MPC Statement (July 31)

Outlook for the UK Economy in July 2025, based on the recent data you shared and the key upcoming releases:

Outlook for the UK Economy in July 2025

The UK economy heads into July 2025 with growing signs of fragility amid persistent inflation, weakening consumer spending, and patchy sectoral performance. Recent figures showed retail sales plunging 2.8% MoM in May—highlighting eroding household demand—while consumer confidence, though slightly improved, remains deeply negative. June’s CBI retail and industrial surveys confirmed deteriorating momentum, raising concerns that stagnant or negative GDP prints could continue into Q2.

Labor market signals are mixed: the claimant count surged by 33K in May, suggesting rising job market slack, while average earnings growth eased slightly but remains elevated at over 5% YoY, keeping wage-driven inflation risks alive. These factors, combined with May’s softer but still sticky inflation readings (headline CPI 3.4% YoY, core CPI 3.5% YoY), reinforce a challenging backdrop for the Bank of England, which held rates at 4.25% in June but revealed an increasingly divided MPC with three members backing a cut.

Housing data underscores uneven conditions: while Nationwide and Halifax reports point to resilience in home prices, approvals and mortgage lending have weakened sharply, and Rightmove’s June reading showed the first monthly price decline in months. This suggests potentially renewed downward pressure on the property market if borrowing costs remain high.

Business activity indicators are flashing tentative signs of stabilization. Composite PMI rose to 50.7 in June, marking modest expansion, with services continuing to outperform a still-contracting manufacturing sector. However, industrial output and trade data remain under pressure, as exports struggled and the trade deficit widened sharply in April.

Given this landscape, July’s key data—particularly June CPI, retail sales, labor market reports, and the BoE’s mid-month meeting—will be pivotal. If inflation shows clearer signs of cooling and spending stabilizes, the Bank may signal readiness for rate cuts later in 2025. However, sticky inflation or further consumer weakness could prolong high rates and intensify stagflation risks. Overall, the outlook points to continued stagnation with heightened vulnerability to negative shocks, leaving the economy finely balanced between shallow growth and contraction as summer progresses.

Given this landscape, July’s key data, particularly June CPI, retail sales, labor market reports, and the BoE’s meeting, will be pivotal. If inflation shows clearer signs of cooling and spending stabilizes, the Bank may signal a readiness for rate cuts later this month. However, sticky inflation or further consumer weakness could prolong high rates and intensify stagflation risks. Overall, the outlook points to continued stagnation with heightened vulnerability to negative shocks, leaving the economy finely balanced between shallow growth and contraction as summer progresses. With this data, rate cuts will have a better chance at the BoE’s July meeting.

Eurozone Economy, June Review and July Outlook

Eurozone Economic Review – June 2025

The Eurozone economy in June displayed mixed signals: growth accelerated in early 2025, but data pointed to deepening manufacturing weakness, moderating services activity, and persistent but cooling inflation, while the European Central Bank (ECB) cut rates for the first time in years.

Growth and GDP:

Eurozone Q1 GDP surprised to the upside, expanding 0.6% QoQ (forecast: 0.3%), with annual growth accelerating to 1.5% YoY—marking the strongest pace in over a year. Spain’s Q1 GDP rose 0.6% QoQ and 2.8% YoY, showing resilience, while Switzerland also beat expectations with 0.5% QoQ and 2.0% YoY growth. However, Germany’s April industrial production fell sharply by 1.4% MoM, and its trade surplus narrowed significantly, reflecting ongoing struggles in Europe’s largest economy.

Business Activity and PMIs:

PMI readings painted a varied picture. The HCOB Eurozone Composite PMI held at 50.2 in June, just in expansion, with services rebounding to 50.0 from 49.7—indicating stabilizing activity. Yet, Eurozone manufacturing PMI stayed stuck at 49.4, in contraction. Germany’s composite PMI climbed back above 50 (50.4), buoyed by improvements in services (49.4) and manufacturing (49.0). In contrast, France’s PMIs deteriorated further in June, with composite (48.5) and services (48.7) signaling contraction. Italy saw a solid performance, with composite PMI at 52.5 and services at 53.2, while Spain’s manufacturing PMI surged into expansion at 50.5.

Labor Market:

The eurozone unemployment rate held steady at 6.2% in April, down from 6.3% in March, reflecting a still-resilient job market. Italy’s unemployment fell to 5.9%, signaling improving conditions.

Inflation:

Eurozone headline CPI cooled to 1.9% YoY in May (April: 2.2%), with core CPI also stable at 2.3% YoY. German CPI held at 2.1% YoY, while Spanish CPI ticked down to 2.0% YoY. Eurozone producer prices plunged 2.2% MoM, deepening disinflationary pressures. Wage growth slowed to 3.4% YoY in Q1 (from 4.1%), suggesting easing cost pressures, but labor costs remain historically high.

ECB Policy:

On June 11, the ECB cut its three key rates by 25bps, lowering the deposit rate to 2.00%, refinancing to 2.15%, and marginal lending to 2.40%. While the ECB signaled further moves would be data-dependent, continued disinflation and weak growth could prompt additional easing later in 2025. Meanwhile, the APP and PEPP portfolios continue to decline as the ECB winds down reinvestments.

Industrial Activity & Trade:

Eurozone industrial production plunged 2.4% MoM in April, the steepest drop in over a year, while the eurozone trade surplus narrowed sharply to €9.9 bn (forecast: €18.2 bn), reflecting weaker exports. Germany’s factory orders unexpectedly rose 0.6% MoM in April, defying forecasts of a decline, but overall, German industry remains under pressure.

Sentiment and Consumer Confidence:

German business sentiment improved modestly: ZEW Economic Sentiment surged to 47.5, and the Ifo Business Climate rose to 88.4. However, French consumer confidence held steady at a weak 88, reflecting persistent household caution amid inflation and political uncertainty.

Country Highlights:

• Italy: Continued service sector strength lifted the composite PMI; unemployment fell to its lowest in years.
• Spain: Growth moderated slightly in Q1, while services activity cooled (PMI 51.3) and industrial production lagged expectations.
• France: Persistent contraction across PMIs highlights ongoing economic fragility.
• Switzerland: GDP outperformed, but manufacturing PMI slumped to 42.1, indicating a sharp industrial downturn.

Eurozone Economic Calendar — July 2025

The eurozone economy shows fragile growth momentum, with manufacturing contractions offset by stabilizing services. Cooling inflation supports the case for further ECB easing, but weak industrial output, soft consumer sentiment, and global demand headwinds pose risks. Key indicators to watch in July include final June inflation figures, updated Q2 growth estimates, and fresh PMI data—all crucial for gauging the trajectory of the eurozone recovery and the ECB’s next steps.

June Composite, Manufacturing, and Services PMIs (S&P Global/HCOB) (July 1–3), June Industrial Production (July 11), June CPI & Core CPI by Eurostat (July 11), and ECB Interest Rate Decision & Monetary Statement on July 24.

Eurozone Economic Outlook, July 2025

The Eurozone enters July 2025 with its recovery showing tentative progress but weighed down by persistent industrial weakness, fragile consumer sentiment, and still-elevated inflation. First-quarter GDP growth surprised on the upside, expanding 0.6% QoQ and 1.5% YoY, reflecting resilience in some southern economies like Spain and Italy. However, high-frequency data through May and June signal that momentum remains patchy: eurozone composite PMIs are hovering near the 50 threshold, manufacturing PMIs are stuck below 50, and industrial production is plunging 2.4% MoM in April.

Labor markets remain a bright spot, with unemployment steady at a low 6.2% in April and Italy’s jobless rate falling to 5.9%, pointing to ongoing employment resilience despite weak factory activity. Consumer confidence in key economies like France, however, remains subdued, signaling cautious households amid sticky price pressures.

Inflation is cooling but remains above the ECB’s target: May headline CPI slowed to 1.9% YoY (from 2.2% in April), and core CPI steadied at 2.3%—enough to prompt the ECB’s first 25bps rate cut in June. While disinflation trends and falling producer prices (Eurozone PPI –2.2% MoM in April) support further policy easing, the ECB has stressed a data-dependent approach, especially with wage growth still elevated at 3.4% YoY.

Trade and industrial indicators remain headwinds. The eurozone’s trade surplus narrowed sharply in April to €9.9 billion (March: €37.3 billion), highlighting weaker external demand. Germany, the bloc’s industrial engine, saw industrial production drop 1.4% MoM and its trade surplus shrink to €14.6 billion, reinforcing concerns about slowing global trade.

Looking ahead, the Eurozone’s path depends on two key dynamics: whether services activity can continue to offset industrial stagnation, and whether inflation continues its downward trend, opening the door for more ECB rate cuts. Risks remain skewed to the downside, with fragile external demand, persistent geopolitical uncertainties, and rising political risks—particularly in France—posing threats to confidence and growth.

Overall, the outlook points to modest, uneven expansion in H2 2025, supported by easing monetary policy and resilient labor markets but constrained by structural weaknesses in industry and tepid consumer sentiment.

China Economy, June Review and July Outlook

China Economic Review – June 2025

China’s economic picture in June 2025 remains one of uneven recovery, as robust consumer spending contrasts sharply with fragile manufacturing and deepening deflationary pressures.

Manufacturing and Industry:

The Caixin Manufacturing PMI fell sharply to 48.3 in May (April: 50.4), well below forecasts and signaling a renewed contraction in factory activity amid weakening domestic and external demand. Industrial production growth slowed modestly to 5.8% YoY in May (April: 6.1%), highlighting a gradual cooling of manufacturing momentum. Year-to-date industrial output grew 6.3% YoY through May, slightly below the 6.4% pace in April. Meanwhile, industrial profits slipped back into contraction, declining 1.1% YoY YTD through May after a brief gain in April, underscoring lingering weakness in corporate margins.

Services and Consumption:

China’s services sector showed a brighter picture, with the Caixin Services PMI rising to 51.1 in May from 50.7, signaling steady, if modest, expansion. Retail sales surged 6.4% YoY in May (April: 5.1%), beating expectations and reflecting a continued rebound in consumer demand. Year-to-date retail sales grew 4.06% YoY through May, indicating momentum is building in consumption. Encouragingly, the urban unemployment rate eased to 5.0% in May (April: 5.1%), suggesting improving labor market conditions.

Prices and Inflation:

Deflationary signals deepened as May CPI fell 0.2% MoM and slipped 0.1% YoY, with consumer prices staying negative for a second consecutive month. Factory-gate prices plunged further, with PPI dropping 3.3% YoY in May (April: –2.7%), reflecting sustained deflationary pressures in the industrial sector.

Trade and External Balance:

China’s trade surplus widened to CNY 743.56 billion (forecast: 710 billion), despite exports missing estimates and imports contracting more than expected. In dollar terms, the surplus rose to USD 103.22 billion. Year-on-year, exports grew 4.8%, slowing down from April’s 8.1%, while imports fell 3.4% YoY, pointing to tepid domestic demand and ongoing global trade softness.

Credit and Monetary Policy:

Credit growth continued to moderate in May: M2 money supply expanded 7.9% YoY, slightly below forecast, and new yuan loans totaled CNY 620 billion, missing expectations despite a jump from April. Outstanding loan growth slowed to 7.1% YoY. The People’s Bank of China (PBoC) left its one-year and five-year Loan Prime Rates unchanged at 3.00% and 3.50% in June, signaling a commitment to an accommodative stance to support recovery amid persistent economic headwinds.

Property and Investment:

The property sector showed tentative stabilization: house prices fell 3.5% YoY in May, a narrower decline than April’s –4.0%. Fixed-asset investment underperformed, rising 3.7% YoY YTD through May (forecast: 4.0%), reflecting muted business confidence and ongoing challenges in attracting private capital spending.

Key data and events in the China Economic Calendar – July 2025

Caixin Manufacturing PMI (July 3), CPI & PPI Inflation (July 9), Trade Balance (Exports & Imports for June) (July 14), Q2 GDP Growth (YoY & QoQ) – Mid to Late July (one of the month’s most closely watched releases) (July 15), and Finally, Loan Prime Rate Decision (PBoC) on July 21.

 China Economic Outlook – July 2025,

China enters July 2025 with its recovery increasingly reliant on consumer spending strength, while industrial and investment momentum remain fragile. Retail sales surprised on the upside in May, surging 6.4% YoY, and the unemployment rate dipped to 5.0%, pointing to continued resilience in household demand, likely to support steady retail and services sector performance through July. Caixin’s Services PMI improvement to 51.1 reinforces this positive near-term view for consumption.

However, deepening weakness in manufacturing clouds the outlook. The Caixin Manufacturing PMI plunged back into contraction at 48.3 in May, and industrial profits fell 1.1% YTD through May, both underscoring fragile factory activity. Coupled with slowing industrial production growth (5.8% YoY in May, down from April), these trends suggest continued pressure on the industrial sector heading into July.

Deflation risks are intensifying. May CPI dipped into negative territory at –0.1% YoY, and PPI tumbled 3.3% YoY, reflecting sustained disinflationary pressures. If June inflation data confirm these trends, it will add urgency to calls for more targeted policy support.

Credit growth in May disappointed across the board, with new yuan loans missing forecasts and M2 growth slipping to 7.9% YoY, signaling tepid demand for credit. Fixed-asset investment also lagged expectations, rising just 3.7% YoY YTD, highlighting muted confidence among businesses.

The property sector’s drag persists, with house prices falling 3.5% YoY in May despite a slower pace of decline, while Q2 GDP (due in mid-July) will be crucial in gauging whether stronger consumption can offset industrial and real estate weakness.

In July, economic momentum is expected to remain uneven: consumer spending should stay firm, but manufacturing softness, weak credit appetite, and deepening deflation risks threaten the sustainability of China’s recovery. Policymakers will likely maintain accommodative policies, but without decisive stimulus, growth could decelerate further in H2 2025, particularly if external demand slows or domestic confidence remains subdued.

Japan’s Economic Recovery Mixed as Momentum Wavers

Japan’s economy is navigating an uneven recovery: investment and select manufacturing data hint at resilience, but household spending and retail figures show caution. Inflation remains above target but shows initial signs of moderation. Expect the BoJ to maintain gradualism, awaiting clearer signs of durable wage-driven inflation and stronger domestic demand.

Japan’s economy in mid-2025 presents a complex picture of tentative recovery in industry and services, persistent inflationary pressures, and signs of softening consumer and investor sentiment.

June Review

Investment and Industry:

Business investment showed resilience, with capital spending jumping 6.4% YoY in Q1 — well above forecasts and reversing last year’s decline — signaling renewed corporate confidence. Factory activity improved at the margin, with the au Jibun Manufacturing PMI rebounding to 50.4 in June, marking expansion after months of contraction. However, May’s PMI readings (49.4) and industrial production (-1.1% MoM) point to ongoing fragility, especially with industrial profits slipping 1.1% YTD through May. Japan’s core machinery orders also surged 6.6% YoY in April but plunged 9.1% MoM, reflecting volatility in capital goods demand.

Services and Consumer Spending:

The services sector maintained moderate growth, with the au Jibun Services PMI rising to 51.5 in June from 51.0 in May. Yet, household spending fell sharply in April (-1.8% MoM, -0.1% YoY), and retail sales slowed significantly in May (+2.2% YoY vs. April’s 3.5%), signaling consumer caution despite stable wage growth (+2.3% YoY) and a tight labor market (unemployment steady at 2.5%). The jobs-to-applicants ratio, however, edged down to 1.24, suggesting subtle cooling in labor demand.

Inflation Dynamics:

Headline and core inflation remain stubbornly high. National CPI held at 3.5% YoY in May, while core CPI accelerated to 3.7% YoY. Services inflation, as measured by the CSPI, stayed firm at 3.3%. Yet, producer prices fell 0.2% MoM in May, with PPI growth slowing to 3.2% YoY, indicating cooling cost pressures upstream. Tokyo CPI readings showed easing inflation (3.1% YoY), reinforcing expectations for the BoJ to stay cautious on tightening.

External Sector and Capital Flows:

Japan’s trade deficit narrowed to ¥637.6 billion in May, better than expected, as exports fell less than feared and imports slumped. The current account surplus shrank in April to ¥2.31 trillion amid stagnant Q1 GDP (0.0% QoQ), highlighting weaker external demand and tepid domestic growth. Capital flows were volatile: foreign investors alternated between heavy buying and selling of Japanese bonds and equities, reflecting shifting global risk appetite and yen dynamics.

Key economic indicators and events to watch for Japan in July 2025

PMIs (July 3), Trade data (July 8), Industrial Production (July 15), National CPI (July 18), and Bank of Japan Policy Meeting & Statement on July 30.

Japan July Economic Outlook

Japan’s economy is showing mixed momentum heading into July 2025. Strong capital spending, which jumped 6.4% year-on-year in Q1, combined with June PMI readings that saw manufacturing expand for the first time in months and faster services growth, points to green shoots of recovery in business investment and industrial activity. However, signs of weakness persist across the household sector: household spending slumped 1.8% month-on-month in April, retail sales growth slowed to 2.2% in May from 3.5% previously, and large-scale retail sales also declined, all suggesting cautious consumer sentiment despite moderating inflation.

Inflation dynamics remain complex, with national core CPI accelerating to 3.7% year-on-year, highlighting sticky underlying price pressures, especially in the services sector, where the Corporate Services Price Index held firm at 3.3% year-on-year. Yet leading indicators show potential easing ahead — Tokyo’s June CPI slowed to 3.1% year-on-year, and producer prices posted their first monthly decline in months, signaling possible relief on upstream costs.

The labor market remains historically tight, with unemployment steady at 2.5%. However, the slight dip in the jobs-to-applicants ratio (1.24 from 1.26) suggests early signs of cooling labor demand, a risk that could dampen wage growth momentum and consumer spending.

On the external front, Japan’s trade deficit narrowed sharply to ¥637.6 billion in May as exports outperformed expectations despite a global slowdown, while imports plunged more than forecast. This helped cushion near-term economic headwinds but leaves Japan exposed to external risks from weakening overseas demand.

Financial markets show mixed investor sentiment, with recent swings in foreign investment flows into Japanese equities and bonds reflecting shifting risk appetite. Meanwhile, Tokyo’s moderating inflation and easing retail momentum give the Bank of Japan space to maintain its cautiously accommodative stance, avoiding aggressive tightening while monitoring persistent core inflation and consumer resilience.

In summary, Japan’s economy is stabilizing but remains fragile: pockets of strength in investment and manufacturing are offset by waning household consumption and sticky service inflation. The outlook hinges on whether wage growth can sustain consumer spending and if global demand can hold up, while the BoJ is likely to stay on a cautious policy path through the summer.

Emerging Economies, Jun Review and July Outlook

Emerging Economies Economic Review – Mid-2025

India: India’s economy showed mixed signals in recent months. The manufacturing PMI dipped to 57.6 in May, still in solid expansion territory but below forecasts, before rebounding strongly to 58.4 in June. Services momentum softened slightly in May (58.8) but accelerated to 60.7 in June, highlighting resilience in India’s largest sector. Wholesale inflation cooled sharply to 0.39% YoY, with deepening food and fuel deflation, while M3 money supply growth accelerated to 9.8% YoY, reflecting robust liquidity. The Reserve Bank of India surprised markets with a 50bps rate cut to 5.50%, underscoring easing inflation concerns and its commitment to supporting growth.

Brazil: Brazil’s economic picture weakened, with the manufacturing PMI slipping into contraction at 49.4 and industrial production flatlining (0.1% MoM in April). Retail sales offered a bright spot, jumping 4.8% YoY, though monthly sales dipped 0.4%. Inflation cooled to 5.32% YoY in May, but persistent price pressures led the central bank to hike the Selic rate by 25bps to 15.00%. Consumer confidence edged down to 85.9 in June, and the current account deficit widened significantly to USD 2.93 billion in May, reflecting external vulnerabilities.

South Africa: South Africa’s manufacturing PMI whipsawed between contraction and expansion, falling to 43.1 in May before rebounding to 50.8, signaling lingering factory-sector fragility. GDP growth limped along at 0.8% YoY in Q1, while the leading business indicator slipped to 112.8 in April. Inflation remained contained with core CPI steady at 3.0% YoY in May, and producer inflation fell sharply to just 0.1% YoY. The unemployment rate improved to 6.2%, its best level since the pandemic, yet structural challenges persist.

Turkey: Turkey’s economic outlook remains clouded by external imbalances and persistent inflation risks. The current account deficit widened sharply to USD 7.86 billion in April. Manufacturing sentiment cooled, with capacity utilization dipping to 74.6% and confidence sliding to 100.3. Despite these headwinds, retail sales accelerated 11.5% YoY in April, showcasing resilient domestic demand. The central bank kept all key rates steady in June, maintaining its tight stance as inflation expectations hover near 30% for year-end.

Mexico: Mexico’s economy showed fragile momentum. Economic activity rebounded 0.5% MoM in April but fell 1.5% YoY, and retail sales slumped 2.0% YoY. Inflation picked up slightly mid-June, with core CPI rising 0.22% half-month. Banxico cut its policy rate by 50bps to 8.00%, continuing its cautious easing amid cooling price pressures. The unemployment rate rose to 2.7% in May, suggesting a modest weakening in labor market conditions.

Russia: Russia’s economy displayed tentative signs of improvement. The manufacturing PMI returned to growth at 50.2 in May, while the services PMI climbed to 52.2, signaling steady expansion. Retail sales rose 1.9% YoY in April, and GDP growth accelerated to 1.9% YoY the same month. However, wage growth flatlined at just 0.1% YoY, reflecting limited gains for households even as unemployment held at a tight 2.3%. The Bank of Russia responded to shifting inflation dynamics by cutting its key rate by 100bps, signaling a pivot toward growth support.

Outlook for Emerging Economies – July 2025,

India

India’s economy is set to maintain solid momentum into July. June’s surge in manufacturing and services PMIs suggests robust activity, while wholesale and consumer inflation trends have cooled notably, creating room for the Reserve Bank of India to continue a dovish stance after its surprise rate cut to 5.50%. However, rapid money supply growth near 10% highlights strong credit demand, which the RBI will need to watch carefully to avoid reigniting price pressures. Overall, India looks poised for resilient growth, supported by healthy domestic demand and moderating inflation.

Brazil

Brazil’s economic outlook is more mixed. Manufacturing remains in contraction territory, and industrial production has stalled. Retail sales are volatile, with annual growth offset by monthly declines, and consumer confidence fell again in June. Although inflation has decelerated, the central bank’s recent Selic hike to 15% underscores concerns about persistent price pressures. The widening current account deficit and slowing FDI inflows add external vulnerabilities. July’s data will be critical for determining whether Brazil’s economy can stabilize or faces deeper headwinds.

South Africa

South Africa’s economy remains fragile. PMIs swung between contraction and mild expansion in recent months, while GDP growth limped along with minimal quarterly gains. Producer inflation plunged to nearly zero, providing leeway for a more dovish SARB, yet weak forward indicators like the leading business cycle index suggest subdued momentum. However, May’s fall in the unemployment rate to its lowest since the pandemic is a bright spot, and if consumer demand holds up, it could limit downside risks in the coming months.

Türkiye

Turkey’s outlook is clouded by high inflation, a wide current account deficit, and currency pressures. Retail sales growth is strong, but the capacity utilization rate and manufacturing confidence dipped in June, reflecting lingering economic uncertainty. The central bank’s decision to hold rates steady signals a cautious stance as it balances inflation stabilization efforts with supporting growth. July will bring crucial data on inflation, external balances, and retail trends, which will shape expectations for any policy shifts.

Mexico

Mexico’s economic data signal a mixed trajectory. Economic activity rebounded strongly in April, but retail sales have since softened, and unemployment ticked higher in May, suggesting potential slack in the labor market. Mid-June inflation surprised to the upside, adding complications for Banxico as it tries to continue its gradual rate-cutting cycle after lowering the benchmark to 8.00%. The outlook depends on whether consumer sentiment can recover enough to sustain spending without reigniting inflation.

Russia

Russia’s economy shows signs of a mild recovery. Manufacturing and services PMIs both climbed back into expansion, retail sales strengthened, and GDP growth accelerated. Yet wage growth has stalled, limiting household purchasing power even as unemployment remains near record lows. With Western sanctions ongoing, domestic demand and government spending will be key drivers, and July data on industrial output and retail will help clarify whether this nascent rebound is sustainable.

Overall Outlook

Across emerging markets, domestic demand shows pockets of resilience—especially in India and parts of Latin America—while external vulnerabilities, elevated interest rates, and volatile inflation remain key challenges. Central banks in these economies are likely to tread cautiously, balancing the need to support growth against the risk of renewed price pressures or capital outflows, especially in a global environment still sensitive to geopolitical developments and advanced economy monetary policy shifts.