UBS Economics-European Economic Comment _European PMIs In wait and see mo...-116102303

ab23 June 2025Global ResearchEuropean Economic CommentEuropean PMIs: In wait and see modeEurozone PMIs moving broadly sideways; no clear tariff damage so farThe Eurozone Composite PMI (survey period 12-19 June) was unchanged at 50.2 in June, marginally above the neutral level of 50. The Services PMI rose 0.3 points to 50, while the Manufacturing PMI was unchanged at 49.4. The manufacturing output index fell 0.5 points to 51, but as such remained in expansion territory for the fourth consecutive month. Aggregate new orders and new export orders remained slightly below 50, indicating ongoing contraction. Aggregate employment was unchanged at 50.2, with continued shrinkage in manufacturing, but growth in services. The one-year business outlook improved by 1.1 points to a six-month high of 58.7, led by services (+1.7 to 57.9), while business expectations in manufacturing moderated again (-0.6 to 61.0), following a sharp rise in May. Price pressures eased marginally on the input side, but picked up on the output side. Today's PMIs render an average Q2 Composite PMI of 50.3, very similar to the 50.4 in Q1-25. In Q1-25, EZ real GDP grew by a surprisingly strong 0.6 % q/q (1.5% y/y), but with Ireland contributing more than 0.3pp q/q. We draw two conclusions from today's data: First, and this is a positive surprise, recent PMIs show little damage from US trade policy and so far no signs of payback from earlier front-loading (of course we don’t know what the "counterfactual"without US tariffs would have been). Secondly, the sideways trend suggests to us that EZ firms are in "wait and see mode", waiting for the outcome of the US-EU trade negotiations. While not ruling out a benign outcome, we remain concerned about renewed trade tensions over the coming weeks. Either way, we think that following the surprisingly strong Q1 GDP growth rate of 0.6% q/q (revised upwards on 6 June), EZ growth will slow down to just 0.1% q/q in Q2-Q4. Such a growth trajectory would imply a 2025 GDP growth rate of 1.2%. Our official forecast is 0.7%, but with the upward revisions for Q1-25 and preceding quarters, our EZ forecast will likely be revised in due course. Country detail: Germany up sharply, setback in FranceThe German Composite PMI rose 1.9 points to a three-month high of 50.4, driven by a much better Services PMI (+2.3 to 49.4) while the Manufacturing PMI rose by a more moderate 0.7 points to 49. There was little evidence of a US tariff risk impact: Composite output and new orders components were up sharply in both sectors (reaching their highest level in three years in manufacturing) and while future output expectations fell back slightly to 55.9, they remained 3.4 points above their April level. In sharp contrast, the French Composite PMI fell 0.8 points to 48.5, but this set-back should be seen against the background of the large increase in May. The June drop was primarily driven by a 2-point decline in the Manufacturing PMI to 47.8, while the Ser