July 2025 Global Economic Outlook

Globally, easing inflation in key regions is strengthening the case for cautious monetary easing. However, lingering geopolitical risks, trade tensions, and uneven domestic demand across both advanced and emerging economies continue to weigh on the growth outlook. Central banks remain finely balanced between supporting economic activity and guarding against a resurgence of price pressures, leaving global markets highly sensitive to incoming data in the second half of 2025.

Global Economic Review: June 2025  

June 2025 highlighted a global economy wrestling with uneven growth, shifting inflation dynamics, diverging central bank policies, and heightened geopolitical and political uncertainties. While disinflation advanced in several major regions, stubborn price pressures and persistent trade tensions kept overall risks elevated.

Geopolitical Tensions

June saw a sharp escalation of geopolitical risks, rising threats to global markets, trade flows, and economic stability.

Middle East Volatility

Hostilities reignited in the Middle East as Israel launched strikes against Iran on June 13, followed by U.S. airstrikes targeting Iranian nuclear facilities, sharply increasing military risks. Although a ceasefire began on June 25, Iran’s parliament voted unanimously to suspend cooperation with the IAEA, effectively blocking independent inspections of damage to its nuclear sites. This move signals Tehran’s hardening stance toward the West after 12 days of attacks by Israel and the U.S., which had varying degrees of European support—keeping regional tensions elevated.

U.S.-China Trade Frictions

A late-June trade deal partially eased tensions, but disputes over technology restrictions, cybersecurity, and tariffs persisted. June 9 trade talks in London led to limited concessions on rare earth exports and student exchanges, yet unresolved issues continue to cloud the global outlook and risk further disruptions to supply chains and growth forecasts.

A Brief Overview of the World’s Major Economies

By mid-2025, the global economy continues to grapple with uneven growth, shifting inflation dynamics, and diverging monetary policies across advanced and emerging markets. In the U.S., economic momentum has cooled: Q1 GDP contracted 0.5% quarter-on-quarter, consumer spending slowed, and the housing market weakened with steep declines in new home sales and building permits. Inflation remains sticky, with core PCE rising 2.7% year-on-year, complicating the Federal Reserve’s policy outlook even as markets anticipate potential rate cuts later this year.

In the Eurozone, economic activity shows modest resilience. Q1 GDP accelerated 0.6% QoQ, and recent PMIs indicate tentative stabilization, with the composite index hovering near 50. However, industrial production contracted sharply in April, and a substantially narrowed trade surplus underscores risks from weak external demand. Inflation cooled, with headline CPI easing to 1.9% YoY in May, bolstering expectations that the ECB’s June rate cut could be the start of a cautious easing cycle.

The UK economy remains fragile. GDP shrank 0.3% MoM in April, and retail sales recorded their steepest drop in over two years. PMIs signal modest services expansion, but manufacturing and construction remain in contraction. Headline inflation cooled to 3.4% YoY, yet persistent wage pressures and a split BoE vote highlight uncertainty over the timing of potential rate cuts.

Japan’s recovery sends mixed signals. Industrial production fell 1.1% MoM in April, and household spending slumped, but manufacturing PMIs rose into expansion territory at 50.4 in June, and services activity strengthened. Core CPI held steady at 2.5%, with Tokyo inflation easing but remaining elevated at 3.1% YoY, keeping the Bank of Japan cautious.

China’s economy remains under strain despite bright spots. Manufacturing contracted with a May PMI of 48.3, while services PMIs edged up. Retail sales beat forecasts, surging 6.4% YoY, and the urban unemployment rate eased to 5.0%. Yet deflation persists in CPI and PPI data, credit growth slowed, and housing markets remain soft despite some stabilization, prompting continued targeted policy support.

Emerging markets are mixed: India’s momentum remained strong with surging PMIs and easing inflation; Brazil’s economy softened with contracting manufacturing and rising external deficits; South Africa showed a fragile recovery as manufacturing fluctuated, but unemployment hit post-pandemic lows; Turkey faces persistent inflation and currency strains despite solid consumer spending; and Mexico’s slowing activity spurred Banxico to cut rates again.

Deeper Review of the U.S. Economy – June 2025

June’s data painted a mixed but increasingly cautionary picture of the U.S. economy. Manufacturing indicators sent conflicting signals: the S&P Global Manufacturing PMI rose to 52.0 in May, signaling moderate factory expansion, while the ISM Manufacturing PMI fell to 48.5, indicating continued contraction. Regional surveys diverged as the Kansas City Fed Index rebounded to +5, while the Philadelphia Fed Index remained at –4.0, highlighting uneven regional conditions. Durable goods orders surged 16.4% MoM in May due to volatile aircraft orders, but core orders excluding transportation rose just 0.5%, reflecting subdued capital investment demand.

The services sector also presented a complex picture. The ISM Non-Manufacturing PMI dipped to 49.9, signaling near-stagnation as new orders slumped. However, the S&P Global Services PMI climbed to 53.7, and the Composite PMI reached 53.0, suggesting momentum in business services despite early signs of cooling demand.

Housing data pointed to persistent challenges. New home sales fell 13.7% in May, the sharpest monthly drop since 2022, while building permits declined 2.0% and housing starts plunged 9.8%. The FHFA House Price Index posted its first monthly decline since 2023, with prices down 0.4% MoM in April and annual growth slowing to 3.0%. Although mortgage rates eased slightly to 6.84%, applications and purchase demand stayed weak due to affordability pressures.

Consumer data showed growing caution: Redbook retail sales growth slowed to 4.5% YoY, and personal spending fell 0.1% MoM in May, with real consumption down 0.3%. Sentiment indicators were mixed. University of Michigan’s Consumer Sentiment Index jumped to 60.5, but Conference Board Confidence sank to 93.0, its lowest since late 2022, reflecting concerns over inflation and job security.

Labor market data suggested softening. ADP payroll growth slowed sharply to 37K in May, well below expectations, while initial jobless claims hovered between 236K and 248K, and continuing claims edged higher near 1.95 million. Despite this, JOLTS job openings surprised to the upside at 7.391 million, reflecting lingering labor tightness.

Inflation remained sticky. Core PCE rose 0.2% MoM and accelerated to 2.7% YoY, while headline PCE held at 2.3%. CPI rose 0.1% MoM in both headline and core readings, with Core CPI elevated at 2.8% YoY. Producer prices edged up 0.1% MoM, and Core PPI eased to 3.0% YoY, suggesting ongoing disinflation in supply chains.

GDP data confirmed deceleration, with Q1 GDP contracting –0.5% annualized and final domestic sales plunging –3.1%. A widening goods trade deficit and a sharply larger Q1 current account deficit of $450.2 billion highlighted external vulnerabilities.

Financial markets reflected rising caution. Treasury yields fell amid strong demand for safe assets, while equities were volatile dropping after Israeli strikes on Iran but ending June with over 5% gains as inflation cooled. The Fed kept rates steady at 4.50% in June, projecting gradual declines over the next two years, though mixed data clouds the timing of any cuts.

Overall, June’s indicators show a U.S. economy losing steam under persistent inflation, high borrowing costs, and weakening consumer demand, with mounting headwinds as H2 2025 begins.

Key U.S. Economic Data to Watch in July 2025

JOLTS Job Openings (July 1), June ISM Manufacturing and Services PMIs (July 1 & 3), June Nonfarm Payrolls (July 4), Weekly Jobless Claims (every Thursday), June CPI (July 11), June Retail Sales (July 16), Housing Starts & Building Permits (mid-July), University of Michigan Consumer Sentiment – Final (July 26), Conference Board Consumer Confidence (July 30), Q2 GDP Advance Estimate (July 31), and the FOMC Meeting (July 30–31).

U.S. Economic Outlook – July 2025

The U.S. economy enters July showing clear signs of slowing momentum and rising headwinds across key sectors. June data revealed weakening consumer spending, with both retail sales and personal consumption contracting, while Conference Board Consumer Confidence dropped sharply — suggesting households are growing more cautious amid sticky inflation and high borrowing costs.

Labor market indicators show gradual softening: job growth slowed dramatically (ADP at 37K vs. 111K expected), initial jobless claims have trended higher, and continuing claims remain elevated near 1.95 million. Although job openings (JOLTS) surprised to the upside, they may not offset signs of softer hiring and rising layoffs, suggesting employment gains could weaken further in July.

Manufacturing signals remain mixed: S&P Global PMIs indicate expansion, while ISM PMIs hover near or below the 50 thresholds, pointing to stagnation or mild contraction. Meanwhile, the housing market continues to struggle, with new home sales plunging 13.7% in May and housing starts falling nearly 10%, pressures that could weigh on construction activity into Q3.

Inflation remains a key concern, with May’s Core PCE accelerating to 2.7% YoY and Core CPI holding at 2.8%, both above the Fed’s target — adding uncertainty over the timing of any rate cuts. Still, recent declines in energy and cooling producer prices suggest potential relief if the trend continues.

GDP indicators offer a complex picture: final Q1 GDP contracted by –0.5%, but the Atlanta Fed’s GDPNow estimates Q2 growth at 3.4%, reflecting strong early-quarter momentum. Yet widening trade deficits and slowing consumption could dampen growth prospects into Q3.

Markets currently price a ~70% chance of a September Fed rate cut, but July’s data — particularly the June CPI (July 11), jobs report (July 4), and Q2 GDP advance estimate (July 31) will be decisive. Without meaningful cooling in inflation and deeper labor market weakness, the Fed may stay patient before easing policy.

Overall, the July outlook points to a fragile expansion reliant on resilient services and moderating inflation, but threatened by softening consumer demand, a cooling labor market, and geopolitical uncertainties. The second half of 2025 could bring sharper deceleration if these headwinds persist.

Wall Street and USD in July 2025

USD Outlook:

With signs of slowing consumer spending, a cooling labor market, and persistent inflation, the USD stands at a crossroads. If key July data — notably the CPI on July 11 and the jobs report on July 4 — show clear disinflation or deteriorating employment, markets are likely to price a higher probability of a near-term Fed rate cut. Historically, this scenario tends to weaken the USD, particularly against currencies like the EUR and JPY. Conversely, if inflation remains sticky or jobs data surprise to the upside, expectations for Fed easing could be pushed further out, supporting or even boosting the USD in the short term. In previous July periods during monetary policy pivots, the dollar has exhibited heightened volatility, often swinging 2–4% against major peers. For instance, in July 2019 and July 2022 — both key Fed transition periods — the USD experienced sharp moves as investors recalibrated rate expectations.

Wall Street Outlook:

U.S. equities enter July with positive momentum: the S&P 500 climbed over 5% in June, lifted by hopes of cooling inflation. Yet risks loom. Weak consumer data could stoke recession fears, pressure cyclicals, small caps, and sectors like retail and discretionary. Conversely, confirmation of disinflation through softer CPI or PCE data could boost tech and growth stocks, as lower rate expectations tend to expand valuations. Historically, July has often been a strong month for equities; since 1990, the S&P 500 has averaged ~1% gains in July, with positive returns in about 60% of cases, driven by Q2 earnings optimism and mid-year portfolio adjustments.

However, geopolitical tensions (e.g., Middle East conflicts, U.S.-China trade friction) could inject volatility, especially if inflation surprises on the upside and reignites fears of prolonged high rates.

Bottom Line Expectations:

If July data confirm cooling inflation and slowing growth, expect the USD to weaken modestly and equities, especially large-cap tech, to extend gains, consistent with “Fed pivot” rallies seen in past cycles. If inflation proves sticky and the labor market remains strong, the USD could strengthen while equities tread water or retreat modestly, reflecting caution over extended high-rate environments. Elevated volatility is likely to persist in late July, particularly ahead of the Q2 GDP release and the pivotal FOMC meeting on July 31.

UK Economic Review – June 2025

June’s data revealed a UK economy grappling with stagnation, persistent inflation, fragile consumer spending, and a mixed housing market, all as the Bank of England (BoE) maintained a cautious stance on interest rates.

The housing sector showed conflicting signals. Nationwide, home prices rebounded 0.5% MoM and rose 3.5% YoY in May, suggesting localized strength. Yet other measures pointed to cooling: Halifax’s HPI slowed to 2.5% YoY with a 0.4% monthly decline, and Rightmove recorded a 0.3% MoM drop in June, the first monthly fall in months—highlighting affordability challenges amid elevated mortgage rates. Mortgage approvals fell sharply to 60.46K, missing forecasts, while net mortgage lending plunged into negative territory at –£0.76 billion, reflecting tightening credit conditions.

Weaknesses in housing paralleled deepening strains in consumer activity. Retail sales posted their steepest monthly drop over two years, with core sales falling 2.8% MoM and 1.3% YoY, and overall retail sales slumping 2.7% MoM. The CBI’s retail sentiment survey collapsed to –46 in June, among the weakest readings since the pandemic, signaling widespread declines across categories. Although GfK consumer confidence edged up slightly to –18, sentiment remained deeply pessimistic.

Labor market data was mixed. Average earnings growth excluding bonuses slowed to 5.2% YoY, down from 5.5%, while the claimant count surged by 33.1K—far above expectations—indicating mounting employment pressures. The unemployment rate ticked up to 4.6%, suggesting an emerging slack in the labor market.

Inflation showed some moderation: May’s CPI rose 0.2% MoM, with core CPI steady at 3.5% YoY. Headline CPI eased slightly to 3.4% YoY but remained well above the BoE’s 2% target, and core RPI fell to 4.1% YoY. These readings underscore that inflationary pressures persist, albeit off recent peaks, reinforcing the BoE’s decision to hold rates at 4.25% in June. The 6–3 split MPC vote, with three members favoring a 0.25% cut, highlighted growing debate over the timing of policy easing.

Business activity showed a tentative recovery. The S&P Global Composite PMI rose to 50.7 in June, signaling slight expansion, while manufacturing PMI improved to 47.7, indicating continued contraction but at a slower pace. Services PMI climbed to 51.3, pointing to firmer momentum in the dominant services sector. However, the CBI Industrial Orders index deteriorated further to –33, reflecting a deepening slump in factory orders amid weak global demand and Brexit-related trade frictions.

Growth data added to concerns: GDP contracted 0.3% MoM in April—the first monthly decline of 2025—and annual GDP growth slowed to 0.9%. Industrial production fell 0.6% MoM, manufacturing output dropped 0.9%, while services output rose 0.6%, providing limited support. The trade deficit widened sharply to £23.21 billion, exacerbating concerns over external imbalances.

Credit and liquidity trends were mixed: consumer credit surged to £1.58 billion, suggesting households increasingly relied on borrowing, while flat or negative M3 and M4 money supply figures pointed to tight monetary conditions. A rise in gilt yields at the latest 5-year auction indicated rising government borrowing costs.

Overall, June’s data paints a picture of a UK economy teetering between stagnation and fragile growth, with households squeezed by high borrowing costs and sticky inflation. While tentative PMI improvements offer limited optimism, upcoming data on inflation, labor markets, and consumer spending will be crucial in determining whether the BoE can justify rate cuts later in 2025.

Key British Data to Watch in July 2025

Key releases include PMIs (July 1 & 3), trade data, GDP, industrial production, and manufacturing output (July 11), the inflation report (July 16), labor market data and the average earnings index (July 17), consumer confidence surveys (e.g., GfK – mid-July), and finally, the BoE interest rate decision and MPC statement (July 31).

Outlook for the UK Economy in July 2025

The UK economy enters July 2025 showing increasing signs of fragility, with persistent inflation, weakening consumer spending, and uneven sectoral performance. Recent data revealed a sharp 2.8% MoM drop in May retail sales, highlighting eroding household demand. While GfK consumer confidence ticked up slightly, it remains deeply negative, and June’s CBI retail and industrial surveys confirmed deteriorating momentum, suggesting GDP could remain stagnant or turn negative into Q2.

Labor market signals are mixed: the claimant count surged by 33K in May, hinting at rising slack, while average earnings growth eased slightly but stayed elevated above 5% YoY, keeping wage-driven inflation pressures alive. Combined with May’s sticky inflation readings—headline CPI at 3.4% YoY and core CPI at 3.5%—these trends reinforce a challenging backdrop for the BoE, which held rates at 4.25% in June amid a divided MPC, with three members voting for a cut.

Housing data shows uneven conditions: while Nationwide and Halifax reports point to resilient home prices, approvals and net mortgage lending weakened sharply, and Rightmove’s June reading revealed the first monthly price drop in months, suggesting a renewed downside risk if borrowing costs remain high.

Business indicators offered tentative signs of stabilization. The composite PMI rose to 50.7 in June, signaling modest expansion as services outperformed the still-contracting manufacturing sector. However, industrial output and trade remain under pressure, with exports weak and April’s trade deficit widening sharply.

Given this landscape, July’s key data, particularly June CPI, retail sales, labor market reports, and the BoE’s meeting—will be pivotal. Clearer signs of cooling inflation and stabilizing spending could open the door for a rate cut later this summer. However, persistent inflation or deeper consumer weakness may force the BoE to keep rates elevated, prolonging stagflation risks. Overall, the UK economy remains finely balanced between shallow growth and contraction as summer unfolds.

Eurozone Economic Review – June 2025

The Eurozone economy in June displayed mixed signals: while early 2025 growth accelerated, data revealed deepening manufacturing weakness, moderating services activity, and persistent but easing inflation. The European Central Bank (ECB) also cut rates, signaling a shift in policy.

Growth and GDP:

Eurozone Q1 GDP surprised to the upside, expanding 0.6% QoQ (forecast: 0.3%), with annual growth accelerating to 1.5% YoY, the fastest pace in over a year. Spain’s Q1 GDP rose 0.6% QoQ and 2.8% YoY, showing resilience, while Switzerland beat expectations with 0.5% QoQ and 2.0% YoY growth. However, Germany’s industrial production fell sharply by 1.4% MoM in April, and its trade surplus narrowed significantly, highlighting persistent challenges in Europe’s largest economy.

Business Activity and PMIs:

PMI readings were mixed. The HCOB Eurozone Composite PMI was held at 50.2 in June, just above stagnation, with services rebounding to 50.0 from 49.7. However, manufacturing PMI stayed in contraction at 49.4. Germany’s composite PMI climbed to 50.4, helped by gains in services (49.4) and manufacturing (49.0). Conversely, France’s PMIs deteriorated further, with composite (48.5) and services (48.7) both contracting. Italy saw robust performance, with composite PMI at 52.5 and services at 53.2, while Spain’s manufacturing PMI surged to expansion at 50.5.

Labor Market:

The eurozone unemployment rate remained steady at 6.2% in April, down from 6.3% in March. Italy’s jobless rate fell to 5.9%, signaling improving labor conditions.

Inflation:

Eurozone headline CPI cooled to 1.9% YoY in May (April: 2.2%), with core CPI stable at 2.3% YoY. German CPI held at 2.1%, while Spain’s CPI ticked down to 2.0%. Producer prices plunged 2.2% MoM, deepening disinflationary trends. Wage growth slowed to 3.4% YoY in Q1 (from 4.1%), suggesting easing cost pressures, although labor costs remain historically high.

ECB Policy:

On June 11, the ECB cut its three key rates by 25bps, lowering the deposit rate to 2.00%, the refinancing rate to 2.15%, and the marginal lending rate to 2.40%. While further cuts will depend on incoming data, continued disinflation and weak growth could prompt additional easing later this year. The APP and PEPP portfolios are also declining as the ECB continues to wind down reinvestments.

Industrial Activity and Trade:

Eurozone industrial production dropped 2.4% MoM in April, the steepest decline in over a year—while the trade surplus narrowed sharply to €9.9 billion (forecast: €18.2 billion), reflecting weaker exports. Germany’s factory orders rose 0.6% MoM, defying expectations of a decline, but the broader industrial outlook remains weak.

Sentiment and Consumer Confidence:

German sentiment improved: ZEW Economic Sentiment surged to 47.5, and the Ifo Business Climate rose to 88.4. French consumer confidence held steady at 88, reflecting ongoing household caution amid elevated inflation and political uncertainty.

Eurozone Economic Calendar — July 2025

The eurozone economy shows fragile growth momentum, with manufacturing contractions partially offset by stabilizing services. Cooling inflation supports the case for further ECB easing, but weak industrial output, soft consumer sentiment, and global demand headwinds pose significant risks. Key indicators to watch in July include final June inflation figures, updated Q2 growth estimates, and fresh PMI data—all crucial for assessing the trajectory of the eurozone recovery and the ECB’s next moves. Important releases include June Composite, Manufacturing, and Services PMIs (S&P Global/HCOB) on July 1–3, June Industrial Production (July 11), June CPI & Core CPI by Eurostat (July 11), and the ECB Interest Rate Decision & Monetary Policy Statement on July 24.

Eurozone Economic Outlook — July 2025

The eurozone enters July with its recovery showing tentative progress but weighed down by persistent industrial weakness, fragile consumer confidence, and lingering inflation. Q1 GDP growth surprised to the upside, expanding 0.6% QoQ and 1.5% YoY, driven by resilience in southern economies like Spain and Italy. However, high-frequency data through May and June signal patchy momentum: composite PMIs are hovering near 50, manufacturing PMIs remain stuck below 50, and industrial production plunged 2.4% MoM in April.

Labor markets remain a relative bright spot, with unemployment steady at 6.2% in April and Italy’s jobless rate falling to 5.9%, indicating employment resilience despite weak factory activity. However, consumer confidence in key economies like France remains subdued, highlighting household caution amid sticky price pressures.

Inflation is cooling but remains above the ECB’s target: May headline CPI slowed to 1.9% YoY (from 2.2% in April), and core CPI steadied at 2.3%—prompting the ECB’s first 25bps rate cut in June. Although disinflation trends and falling producer prices (Eurozone PPI –2.2% MoM in April) support further policy easing, the ECB has emphasized a data-dependent approach, especially with wage growth still elevated at 3.4% YoY.

Trade and industrial indicators remain headwinds. The eurozone’s trade surplus narrowed sharply in April to €9.9 billion (from €37.3 billion in March), underscoring weaker external demand. Germany’s industrial production fell 1.4% MoM and its trade surplus shrank to €14.6 billion, reinforcing concerns about slowing global trade.

Looking ahead, the eurozone’s path will depend on whether services activity can continue to offset industrial stagnation and whether inflation continues to decline, creating space for additional ECB rate cuts. Risks remain tilted to the downside, with fragile external demand, persistent geopolitical uncertainties, and rising political risks—particularly in France—posing threats to sentiment and growth. Overall, the outlook points to modest, uneven expansion in H2 2025, supported by easing monetary policy and resilient labor markets but constrained by structural industrial weaknesses and subdued consumer confidence.

China Economic Review – June 2025

China’s economic picture in June 2025 highlights an uneven recovery, with robust consumer spending contrasting sharply with fragile manufacturing and deepening deflationary pressures.

Manufacturing and Industry:

The Caixin Manufacturing PMI fell sharply to 48.3 in May (April: 50.4), well below forecasts and signaling renewed contraction in factory activity amid weakening domestic and external demand. Industrial production growth slowed to 5.8% YoY in May (April: 6.1%), pointing to cooling manufacturing momentum. Year-to-date industrial output rose 6.3% YoY through May, slightly below April’s 6.4% pace. Industrial profits slipped back into contraction, declining 1.1% YoY YTD through May after a brief gain in April, underscoring persistent pressure on corporate margins.

Services and Consumption:

The services sector provided a brighter spot, with the Caixin Services PMI rising to 51.1 in May (April: 50.7), signaling modest but steady expansion. Retail sales surged 6.4% YoY in May (April: 5.1%), beating expectations and reflecting a continued rebound in consumer demand. Year-to-date retail sales grew 4.06% YoY through May, indicating building consumption momentum. Encouragingly, the urban unemployment rate eased to 5.0% in May (April: 5.1%), suggesting gradual improvement in labor market conditions.

Prices and Inflation:

Deflationary signals deepened as May CPI fell 0.2% MoM and slipped 0.1% YoY, marking the second straight month of negative consumer prices. Factory-gate prices weakened further, with PPI plunging 3.3% YoY in May (April: –2.7%), reflecting persistent deflationary pressures in the industrial sector.

Trade and External Balance:

China’s trade surplus widened to CNY 743.56 billion (forecast: 710 billion), despite exports missing estimates and imports contracting more than expected. In dollar terms, the surplus rose to USD 103.22 billion. Year-on-year, exports grew to 4.8%, decelerating from April’s 8.1%, while imports fell 3.4% YoY, highlighting tepid domestic demand and ongoing global trade softness.

Credit and Monetary Policy:

Credit growth moderated in May: M2 money supply expanded 7.9% YoY, slightly below expectations, while new yuan loans totaled CNY 620 billion, missing forecasts despite rising from April. Outstanding loan growth slowed to 7.1% YoY. The People’s Bank of China kept its one-year and five-year Loan Prime Rates unchanged at 3.00% and 3.50% in June, signaling a continued accommodative stance amid persistent economic headwinds.

Property and Investment:

The property sector showed tentative stabilization: house prices fell 3.5% YoY in May, a narrower decline than April’s –4.0%. Fixed-asset investment underperformed, rising 3.7% YoY YTD through May (forecast: 4.0%), reflecting muted business confidence and ongoing challenges attracting private capital spending.

Key Data and Events in China Economic Calendar – July 2025

Key releases include the Caixin Manufacturing PMI (July 3), CPI & PPI Inflation (July 9), Trade Balance (exports and imports for June) (July 14), Q2 GDP growth figures (YoY and QoQ) one of the month’s most closely watched releases (July 15), and the Loan Prime Rate decision from the PBoC (July 21).

China Economic Outlook – July 2025

China enters July 2025 increasingly dependent on consumer spending strength, even as industrial and investment momentum remain fragile. Retail sales surprised to the upside in May, surging 6.4% YoY, while the unemployment rate dipped to 5.0%, indicating continued resilience in household demand that should support retail and services sector performance into July. The rise in Caixin’s Services PMI to 51.1 reinforces this positive near-term view for consumption.

However, manufacturing weakness casts a shadow over the outlook. The Caixin Manufacturing PMI plunged back into contraction at 48.3 in May, and industrial profits fell 1.1% YTD through May—underscoring fragile factory activity. Slowing industrial production growth (5.8% YoY in May, down from April) suggests ongoing pressure on the industrial sector as July unfolds.

Deflation risks are intensifying May CPI slipped into negative territory at –0.1% YoY, and PPI fell 3.3% YoY, reflecting deepening disinflationary pressures. If June inflation data confirms these trends, they will add urgency to calls for more policy support.

Credit growth disappointed in May, with new yuan loans missing forecasts and M2 money supply growth slowing to 7.9% YoY—signaling tepid credit demand. Fixed-asset investment also lagged, rising just 3.7% YoY YTD, highlighting muted business confidence.

The property sector continues to drag on the economy, with house prices falling 3.5% YoY in May despite a slower pace of decline. The upcoming Q2 GDP release in mid-July will be pivotal in assessing whether robust consumption can offset persistent weakness in industry and real estate.

In July, economic momentum is expected to stay uneven: while consumer spending should remain firm, manufacturing softness, weak credit appetite, and deflation risks threaten the durability of China’s recovery. Policymakers will likely maintain accommodative measures, but without decisive stimulus, growth could slow further in H2 2025—especially if external demand falters or domestic confidence remains subdued.

Japan’s Economic Recovery Mixed as Momentum Wavers

Japan’s economy in mid-2025 presents a complex picture of tentative industrial and services recovery, persistent inflationary pressures, and signs of softening consumer and investor sentiment. While investment and select manufacturing data hint at resilience, household spending and retail figures show growing caution. Inflation remains above target but is beginning to show signs of moderation, suggesting the Bank of Japan (BoJ) will maintain a gradual policy approach as it awaits clearer evidence of durable wage-driven inflation and stronger domestic demand.

June Review

Investment and Industry:

Business investment rebounded strongly, with capital spending surging 6.4% YoY in Q1—well above forecasts and reversing last year’s decline—signaling renewed corporate confidence. Factory activity showed tentative improvement, with the au Jibun Manufacturing PMI rising to 50.4 in June, indicating expansion after months of contraction. However, May’s PMI (49.4) and industrial production (-1.1% MoM) highlighted ongoing fragility, while core machinery orders surged 6.6% YoY in April but plunged 9.1% MoM, reflecting volatility in capital goods demand.

Services and Consumer Spending:

The services sector maintained moderate growth, with the au Jibun Services PMI climbing to 51.5 in June. Yet household spending fell sharply in April (-1.8% MoM, -0.1% YoY), and retail sales growth slowed notably in May (+2.2% YoY vs. April’s 3.5%), signaling consumer caution despite stable wage growth (+2.3% YoY) and a tight labor market (unemployment steady at 2.5%). The jobs-to-applicants ratio edged down to 1.24, hinting at softening labor demand.

Inflation Dynamics:

Headline CPI held at 3.5% YoY in May, with core CPI accelerating to 3.7% YoY. Services inflation (CSPI) remained firm at 3.3%. However, producer prices fell 0.2% MoM, with PPI growth slowing to 3.2% YoY, indicating cooling upstream cost pressures. Tokyo CPI eased to 3.1% YoY, reinforcing expectations that the BoJ will remain cautious on policy tightening.

External Sector and Capital Flows:

Japan’s trade deficit narrowed to ¥637.6 billion in May, better than expected, as exports fell less than anticipated and imports slumped. The current account surplus shrank in April to ¥2.31 trillion, alongside stagnant Q1 GDP (0.0% QoQ), reflecting weaker external demand and sluggish domestic growth. Meanwhile, volatile capital flows saw foreign investors alternate between heavy buying and selling of Japanese bonds and equities, highlighting shifting global risk appetite and yen dynamics.

Key Economic Indicators and Events to Watch for Japan in July 2025

• PMIs (July 3)
• Trade Data (July 8)
• Industrial Production (July 15)
• National CPI (July 18)
• Bank of Japan Policy Meeting & Statement (July 30)

Japan July Economic Outlook

Japan’s economy heads into July 2025 with mixed momentum. Strong capital spending, which surged 6.4% year-on-year in Q1, and June’s PMI data showing manufacturing expanding for the first time in months alongside faster services growth, point to early signs of recovery in business investment and industrial activity.

However, household indicators remain weak. Household spending plunged 1.8% month-on-month in April, retail sales growth slowed sharply to 2.2% in May from 3.5% previously, and large-scale retail sales declined — signaling continued consumer caution despite moderating inflation trends.

Inflation dynamics remain complex. National core CPI accelerated to 3.7% year-on-year, underscoring persistent underlying price pressures, particularly in services where the Corporate Services Price Index stayed firm at 3.3%. Yet, leading indicators hint at potential relief ahead: Tokyo’s June CPI slowed to 3.1% year-on-year, and producer prices posted their first monthly decline in months, suggesting easing upstream cost pressures.

The labor market remains historically tight, with unemployment steady at 2.5%. However, the jobs-to-applicants ratio slipped to 1.24 from 1.26, signaling early signs of cooling labor demand that could weigh on wage growth and future consumption.

On the external front, Japan’s trade deficit narrowed to ¥637.6 billion in May as exports outperformed expectations despite a global slowdown, while imports dropped more sharply than forecast. This helped offset domestic weaknesses but leaves Japan vulnerable to softer overseas demand.

Financial markets reflect mixed investor sentiment, with recent swings in foreign investment flows into Japanese bonds and equities highlighting shifting global risk appetite. Moderating inflation and softening retail momentum give the Bank of Japan room to maintain its cautious policy stance, avoiding aggressive tightening while monitoring persistent core inflation and consumer resilience.

Overall, Japan’s economy is stabilizing but remains fragile, with investment and manufacturing strength tempered by weak household spending and sticky service inflation. The outlook hinges on sustaining wage growth and global demand, while the BoJ is expected to remain patient throughout the summer.