The economic climate in the second quarter of 2025 was once again dominated by politics, notably: President Trump's repeated announcements in the U.S. about tariffs, investment plans (in Europe for defense and infrastructure), and China’s consumer stimulus plan. In the Near East, Israel's wars against Hamas in Palestine, and Iran, also marked 2025’s second quarter, in particular by creating volatility for the oil markets. Economic conditions deteriorated but ultimately remained relatively stable. Political events have deeply disrupted the sequencing of statistics, and the exact impact of the start of President Trump's second term will only become measurable in one or two more quarters’ time.
In the financial world, monetary policies remained restrictive in the US, while the ECB continued to cut its key rates. Around the world, inflation no longer seems to be a cause for concern, although it remains at levels above central bank targets except in the Eurozone. On Wall Street and stock markets in general, the “air pocket” identified at the beginning of April was followed by a strong rebound, reflecting the optimism of market actors. This contrasts with the wait-and-see attitude prevailing in the real world.
In the US, GDP growth for the second quarter of 2025 is expected to rise by +1.7% (at an annual rate), a slower pace than in the first quarter (+2%). As a reminder, quarterly sequential GDP growth for the first quarter was recently revised to -0.5%, mainly due to public spending cuts and higher imports, in anticipation of the introduction of tariffs in April. Consumer confidence, as measured by the Conference Board and the University of Michigan, has fallen sharply, due in particular to the high-profile layoffs of federal workers. Overall, consumption remains resilient, thanks to falling inflation. Unemployment is still low at 4.1%, and better-than-expected job growth indicates the dynamism of the labor market. GDP growth forecasts for 2025 are currently at +1.5%, after 2.8% in 2024, and have been sharply revised downwards by major international bodies such as the IMF and the OECD. Economic actors are still uncertain towards the tariffs, but, according to the average estimates of several forecasters, a sharp rise in customs duties on imported products should reduce US growth by +0.5% to +1% and increase inflation by +1.5% to +2%. By the end of the second quarter, uncertainty remained high on this topic. Given that its inflation target is at 2%, the Central Bank has continued its pause in rate cuts, which remains unchanged since the last cut of 0.25% in December 2024. Fed funds remain in a range between 4.25% and 4.5%. The dollar fell sharply against the euro and other major currencies, which is good news for exporting companies.
In the Eurozone, the general trend of stagnation continues, with GDP expected to remain flat in the second quarter of 2025. There are notable differences between the various countries in the zone. In Germany, the election of Fredrich Merz in early May put an end to a period of political uncertainty. The new Chancellor successfully lifted the constitutional brake on public deficit and put to the vote the concept of a sharp rise in military spending. The confirmed gradual end of the US “military umbrella” has led to a sharp rise in capital expenditure, which should boost growth in Germany and its European peers from 2026 onwards. For the second quarter of 2025, economists’ consensus expects GDP growth of +0.3%, which would be the strongest annualized quarterly growth since the final quarter of 2022. In France, GDP is expected to grow by +0.5% in the second quarter, a slight slowdown compared to the first quarter (+0.6%), which contrasts with the slight acceleration of growth seen in Germany. Household spending fell by -0.5% in May, including a significant drop in orders for private vehicles. As in Germany, the contribution of foreign trade is weakening. Efforts to reduce public spending and deficit are having a negative impact on growth, while disinflation is reducing tax revenues, particularly VAT.
The UK economy is relatively resilient. It remains highly dependent on the European economy, but its GDP should nevertheless grow by +0.9% in the second quarter of 2025, at the midpoint between those of the Eurozone (+0.4% - +0.5%) and the U.S. (+1.7%). Business investment and public spending are making a particularly weak contribution to growth, which is being weighed down by efforts to reduce public deficit. Inflation remains an issue, reaching an annualized 3.7% at the end of May, and 4% for the European indicator.
The Chinese economy remains weak. In the first quarter, it had benefited from strong US demand, in anticipation of the sharp rise in tariffs. GDP growth is expected to reach +4.9% in the second quarter, after +5.4% in the first. Consumption is holding up as China’s retail sales have strongly risen. Sales of goods targeted by the new stimulus plan have soared, including household appliances at +53% and communications equipment at +33%. The real estate sector is still in crisis, and increased trade tensions with the US and, to a lesser extent, Europe, are affecting growth. On the other hand, foreign trade is very buoyant, with consensus for the second quarter expecting a -1.4% drop in imports and a +4% rise in exports.
Oil prices were highly volatile due to the US strikes on Iranian nuclear sites and the ongoing conflict between Iran and the Jewish state. Despite this major geopolitical tension, the price of Brent crude stood at $66 a barrel at the end of June, down from $20 a year earlier. This trend reflects weak demand, affected by the global economic slowdown, and a still abundant supply.
