Euro area

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Euro area

ugh the spring,

very near term, we expect the flash July PMI to be stable next but this increase was mainly driven by refineries, and to some

week, while the news flow through the end of June had raised extent chemicals. Output in the rest of the energy-intensive

hopes for another gain in July. We also lifted our Euro area basket (paper, non-metallic minerals and metals) has overall

inflation forecast cautiously this week as energy prices can be moved sideways in recent months. Outside energy-intensive

volatile. companies, auto production remains volatile and weak, while

pharma production has stabilized after moving down follow-

The ECB is very likely to stay on hold next week. Swings in ing the tariff-driven frontloading pattern seen in 1H last year.

energy prices are likely to reinforce the ECB’s decision in The rest of the basket has shown tentative signs of improve-

June to keep communication neutral and stick firmly to its ment since the start of 2025.

data-dependent, meeting-by-meeting approach. The direction

of travel for the policy rate is clearly upward. ECB scenarios At the country level, the Spanish manufacturing output data

published in June, even the milder one, had “almost three have been on a trend up since the start of 2025 (Figure 2).

hikes” factored in (including the one done in June). We con- During this period, manufacturing output overall has

tinue to expect a final hike in September despite recent ener- increased in France and largely moved sideways in Italy. The

gy price increases, as data overall hint at a limited pass- German industry data of late overall have been incouraging.

through to core prices. IP increased in May, building on a gain in April. German

orders have been on an upward trend in recent quarters. Over