Eurozone: Weak PMIs and higher inflation forecasts – Rabobank

Rabobank’s Senior Macro Strategist Teeuwe Mevissen reports that Eurozone growth indicators have deteriorated, with French and German PMIs signaling contraction and the German IFO near a five-year low. The European Commission has cut its GDP projections and raised inflation forecasts for the EU and Eurozone. Mevissen stresses the policy dilemma for the ECB and expects only one 25 bps rate hike versus market pricing of more than two.

Soft data clash with sticky price pressures

"Yesterday’s release of French preliminary May PMI data showed a plunge in the composite number to 43.5 from 47.6 the previous month, with weakness evident in both the manufacturing and the services sectors."

"The German PMI data was less of a shock but with a composite number reading 48.6, the economy is continuing to show signs of contraction. While this morning’s German IFO release was a little better than expected, it remains close to a 5-year low."

"Yesterday’s release of the spring forecasts from the European Commission reflected the growing pessimism regarding the economic toll of the Iran war."

"The EC’s forecast for inflation in the EU has been revised a full percentage point higher to 3.1% in 2026."

"This morning the market is priced for a little more than two 25 bps ECB rate hikes on a 6-month view. Rabobank has pencilled in just one for now."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)