Insights 
VT 
In June 2025, the Eurozone’s final services PMI was 50.5, slightly above the preliminary reading of 50.0, and up from May’s 49.7. The composite PMI also increased to 50.6, showcasing slight economic growth, though new business demand remains fragile. Input price inflation fell to a seven-month low, yet concerns about costs persist.
The services sector has been largely stagnant since April, with overall growth since mid-2021 being weak compared to historical averages. Unlike past recessions, job cuts have been avoided due to labour shortages post-COVID-19, maintaining private consumption. Employment even rose in June, suggesting a recession might be avoidable soon.
Germany’s Economic Outlook
A robust recovery may be challenging for the eurozone, but Germany could see improvements due to a planned government stimulus package. This fiscal intervention is expected to benefit the entire service sector, with positive forecasts for next year. Nevertheless, expectations for the Eurozone remain below the long-term average.
Sales prices in the services sector increased more strongly in June, and input costs continued to rise. While services inflation has become less critical, likely due to factors like a strong euro and US tariff impacts, it still holds importance for the European Central Bank.
The latest data paints a picture of modest improvement, with the Eurozone services PMI just edging past the neutral line. A reading of 50.5, while not dramatic, does signal the first expansion in the sector in several months. This small movement above 50 suggests that activity is no longer retreating, though barely advancing either. The accompanying rise in the composite metric supports this view—just about enough for cautious optimism.
New order volumes remain soft despite the uptick, hinting that underlying business confidence is still fragile. For those assessing future flows and momentum, this lack of demand acceleration reinforces the idea that the recovery is teetering on thin support. Input cost inflation may have cooled somewhat—hitting a seven-month low—but the pressure hasn’t vanished. That it has slowed rather than reversed should inform how we balance pricing assumptions in the next round of market positioning.
Employment Trends
What stands out, however, is the strength in employment. Despite stagnation, job numbers have risen, largely thanks to ongoing structural labour shortages in the services sector. Unlike previous contractions where layoffs were common, businesses appear reluctant—or simply unable—to reduce headcount in this environment. This steady employment base might explain the resilience in private consumption, keeping consumer-facing segments from sliding further.
Germany’s planned state-level spending package, which aims to reinvigorate domestic demand, appears to be the main bright spot. While Berlin’s fiscal tools aren’t groundbreaking, they might provide enough traction to revive weaker parts of the zone’s economy. The policy detail includes targeted investment and incentives, intended to lift corporate sentiment and spending in business-to-business services.
Sales price data will also have caught our attention. The pace of increase in June accelerated, in part due to persistent service demand in niche sectors and residual wage pressures. Although overall cost growth has slowed, and the euro has firmed slightly against peers, we cannot dismiss the secondary effects of tariff adjustments—especially with ongoing frictions on transatlantic goods. That would explain why price sticks haven’t loosened up just yet.
For now, expectations sit below what we would normally associate with a healthy services cycle. That reflects not only structural drag but a wait-and-see attitude amid monetary policy caution. Indeed, even as input costs fall, there is limited pass-through to end consumers, suggesting margin protection remains a priority.
So, given the flatlining orders, sticky input expenses, and targeted state support in the pipeline, the environment remains patchy. Positioning will need to reflect a narrow growth bias over the coming weeks. Piling into aggressive reflation trades might still be premature. Instead, favour calibrated exposure to segments with higher pricing power or fiscal backing. There’s little room for error.
