Economy in Brief

Economic situation- The ZEW index for June 2025 showed significant improvement in the euro area with the index moving up to -30.7 from -42.4 in May. At that level, the queue percentile standing on data back to 1992 is at its 47.5 percentile, close to its median for the period (median occurs at a ranking of 50%). For Germany, there was an improvement from -82 in May to -72 in June; this sets its standing at about its 20th percentile, much weaker than for the euro area overall. For the United States, there was a more modest improvement in June to -17.3 from May’s -25.4; June marks a 25.8 percentile standing, roughly in the lower quartile of its historic queue of data over the last 13 years. Economic assessments for these three reporters range from quite weak to just slightly below ‘normal.’

Macro-expectations- Macroeconomic expectations became sharply stronger for Germany in June; they moved up to a +47.5 reading in June from +25.2 in May, a reading that already had improved from -14 in April. Germany is on a very hot run in terms of expectations that are improving at a much faster pace than the current economic situation. Germany’s macroeconomic expectations have a 72-percentile standing, in the top 30% of their historic queue of data, quite a solid result. This contrasts sharply with the United States where there was also an improvement in June to -41.9 from -48.2 in May. The U.S., like Germany, had undergone a substantial improvement in May compared to April since April's reading had been -71.5. However, the June reading for the U.S. improved month-to-month by only a modest amount and has only an 8.5 percentile standing, the lower 10% of its historic queue of data.

Inflation expectations- Inflation expectations remain weak in the euro area and in Germany in June while they've grown to be quite strong in the United States. Germany saw slight increases in inflation expectations in the month, but they are still at weak levels and the 20- to 25-percentile region on a queue-standing basis. For the U.S., inflation expectations have cooled slightly from a reading of 75.8 in April to 70.7 in May, to 60 in June, a clear de-escalation of inflation expectations; however, still leaving a high 81.1 percentile standing for inflation expectations in the U.S.

Short-term rate expectations- Short-term interest rate expectations in the euro area rose after falling back in May; in the U.S., they edged only slightly higher after also having stepped back in May. However, both the U.S. and the euro area have extremely weak queue standings, both of them in the lower 15-percentile of their respective ranges. Short-term interest rates simply are not expected to rise, and they obviously are more likely to be cut on readings like these.

Long-term rate expectations- Long-term expectations for Germany and the United States show German expectations have waffled, moving from 23.3 in April, down to 6.9 in May and bouncing back to 16.8 in June to produce a queue standing in its 22nd percentile. In the U.S., long-term rate expectations were at 48.5 in April; they fell to 32.1 in May and rebounded to 39.0 in June to reach a queue standing at its 43.6 percentile, slightly below its median standing for the period (remember that median standings occur at a queue percentile standing of 50%).

Stock market outlooks remain weak- Stock market expectations show weak standings everywhere. The euro area saw a marginal technical improvement in June compared to May; Germany saw a small improvement in June compared to May, whereas May had seen a more significant increase compared to April. The U.S. continues to log negative readings for equities. Germany and the euro area show standings for the stock market in their respective 15-percentile ranges, whereas the United States’ reading is in its 7th percentile. All of those readings are weak.

This week, we focus on India’s economic developments, which continue to demonstrate resilience amid persistent global headwinds. In Q1, GDP growth accelerated to its fastest pace in a year, surpassing expectations. Services remained the primary growth driver, bolstered by gains in construction and manufacturing (chart 1). Despite widespread global downgrades, the World Bank still expects India to be the fastest-growing major economy in 2025.

While services have long underpinned India’s growth, the country is gradually pivoting toward manufacturing, including higher-end, IP-intensive sectors. Progress has been made—such as attracting iPhone production—but manufacturing has yet to significantly shift the composition of GDP, which remains heavily weighted toward services (chart 2). India’s rising role as a “China Plus One” destination has enhanced its global appeal, though the shift has drawn criticism from former US President Trump, who favours bringing manufacturing back to the US.

India’s strategic ties with both the US and China require a careful balancing act. The US is India’s top export destination, with major exports including pharmaceuticals, jewellery, and smartphones (chart 3). At the same time, India relies heavily on China for critical inputs such as Key Starting Materials (KSMs) and Active Pharmaceutical Ingredients (APIs), both vital to its pharmaceutical sector (chart 4). As a result, India is seeking to deepen trade relations with the US while avoiding actions that might provoke China. Trade negotiations with the US are reportedly progressing, with an interim deal possible ahead of Trump’s July 9 tariff deadline.

On the monetary front, the Reserve Bank of India cut policy rates by 50 bps in June and announced a phased 100 bps reduction in the Cash Reserve Ratio (CRR), in response to falling inflation and risks of weaker demand (chart 5). As a partial consequence, the rupee has underperformed its Asian peers—though the primary pressures stem from persistent foreign outflows and narrower interest rate differentials (chart 6).

India’s economic developments India’s economy grew faster than expected in calendar Q1, with growth accelerating to 7.4% y/y—exceeding economists’ expectations and marking the fastest growth rate in a year. By sector, and based on gross value added at basic prices, services remained the primary growth driver, as shown in chart 1. However, contributions from the construction and manufacturing sectors also improved. More broadly, many investors and economists continue to view India as one of the few economies expected to deliver robust growth this year. This remains a rare distinction, given the growth-dampening effects of US tariffs and the associated retaliatory actions. That said, recent US-China breakthroughs on trade-related agreements have eased much of this latent risk.

Despite enacting widespread forecast downgrades in its latest projections just last week, the World Bank still expects India to post the fastest growth among major economies in 2025. Nonetheless, India’s outlook has been somewhat dampened by weaker export potential and slowing investment amid rising global trade barriers. Similarly, panellists in our recent Blue Chip Economic Indicators survey continued to rank India as the top-growing major economy among those covered.