Four signals from Q1 2025 macro economics arena ⬇️
1️⃣ #Eurozone: Robust growth before tariffs bite 🌐
The Eurozone economy started the year on solid footing, growing by +0.4% q/q, outperforming expectations. #Growth was driven by strong performances in Spain, Ireland, and Italy, while core Europe lagged. Germany posted a modest +0.2% q/q, helped by consumer spending & investment, while France underperformed due to weak private and public consumption.
Exports surged—especially to the US—ahead of anticipated tariff hikes, temporarily boosting activity.
Yet, with trade restrictions tightening and a US recession looming, we maintain our forecast for subdued growth of +0.8% in 2025. As inflation continues to cool, we still expect the ECB to lower its policy rate to 1.5% by September.
2️⃣ US: #Tariff damage increasingly visible, but the #Fed will wait it out 💱
US GDP contracted slightly in Q1 (-0.3% q/q annualized), largely due to a 41% surge in imports before tariffs took effect. Underlying domestic demand remains resilient: consumers frontloaded spending (+1.8%), and business investment jumped +9.4% on industrial goods. But this momentum is unlikely to last—port data shows falling shipments in April, while business confidence and household sentiment are deteriorating.
We expect the US to flirt with recession in H2 2025. Despite rising inflationary pressures, the Fed is likely to hold next week, with the easing cycle starting cautiously in October.
3️⃣ #Inventories: Costly buffers in a trade war environment 📦
Building inventory is not a one-size-fits-all strategy. We estimate the average inventory cost for major US consumer sectors equals 2–3 months of turnover, giving some room to absorb short-term shocks.
While sectors like defense and transport equipment are actively stockpiling, others—appliances, autos, textiles—are cutting back due to profitability concerns or already-high inventories. Some industries (pharma, telecom) are simply avoiding stockpiles altogether. Instead, companies are increasingly using free-trade zones and bonded warehouses to delay entry taxes. Rising storage vacancy rates (8.5%, +330bps y/y) point to limited reshoring appetite.
4️⃣ Large #insolvencies: One per day and rising ⚠️
Since the start of the year, 122 companies with revenues above EUR 50mn have filed for insolvency—a new high since 2015. Western Europe saw the highest number of cases (+10 y/y to 74), while the US dominated in size, with 8 of the top 20 cases. Services and retail are the hardest hit across Western Europe and North America, followed by construction in Europe and Asia. If current trends persist, 2025 could break records for large corporate defaults, raising the risk of systemic strain via supply chain contagion.
#USEconomy #ECB #TradeWar #Ludonomics #AllianzTrade #Allianz