FLASH PMIs
Eurozone output growth at 11-month high as new orders stabilise
The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index rose to 51.0 in July from 50.6 in June. The latest reading signalled a seventh consecutive monthly increase in business activity across the euro area. Although modest, the pace of growth quickened for the second month running and was the sharpest since August last year.
Output increased across both the manufacturing and services sectors, but for the first time in four months the services category posted the stronger pace of growth as the rate of expansion quickened to the fastest since January. Meanwhile, manufacturing production rose marginally, and at a fractionally slower pace than in June.
Differing trends were recorded across the various areas of the Eurozone covered by the flash PMI release. Germany posted a marginal increase in output for the second month running. In France, activity decreased again but at the slowest pace in the current 11-month sequence of decline. Meanwhile, the rest of the euro area registered a solid expansion in output that was the most marked since February.
July data pointed to a stabilisation of new orders, thereby ending a 13-month sequence of contraction. Services new business increased for the first time in six months, but this was cancelled out by a renewed fall in manufacturing new orders. While total new business stabilised, new export orders (which include intra-Eurozone trade) decreased again. The latest fall was modest, but quicker than that seen in the previous survey period. New business from abroad has declined continuously on a monthly basis since March 2022.
Higher activity requirements and a stabilisation of new orders encouraged companies in the Eurozone to raise their staffing levels again in July, extending the current period of job creation to five months. The pace of job creation was marginal and unchanged from June. Employment increased in the services sector but continued to fall in manufacturing, although the latest reduction was the least pronounced since June 2023. The overall increase in workforce numbers was reflective of job creation outside the largest two euro area economies as Germany and France continued to post declining staffing levels. In fact, outside the ‘big-2’ the pace of job creation was the strongest in just over a year.
Backlogs of work decreased again in July, but the pace of depletion was only slight, having eased for the second month running to the weakest since April 2023
Although input costs continued to increase in July, the pace of inflation eased to a nine-month low and was weaker than the series average. Services input prices rose at a slower pace, while costs in the manufacturing sector continued to decrease. That said, the latest fall was only fractional and the softest in four months.
Manufacturing output prices were unchanged in July, ending a two-month sequence of decreases. Meanwhile, the pace of services charge inflation softened. Overall, companies in the euro area raised their output prices modestly, and at the same pace as in June.
The pace of selling price inflation in Germany eased over the month, but faster increases were seen in France and the rest of the Eurozone.
After business sentiment hit an 11-month high in June, confidence dipped slightly in July. As such, optimism remained weaker than the series average. Sentiment was lower across both monitored sectors. Business confidence declined in France during the month, after having jumped in June. Elsewhere, however, optimism strengthened. In Germany, sentiment hit a 14-month high, while the rest of the euro area signalled the strongest confidence in the year-ahead outlook since February. (…)
There is good news for the ECB, as the disinflation trend has continued in the closely watched service sector. Prices for goods did not fall further in July, but the stronger euro and US tariffs are likely to exert downward rather than upward pressure on inflation in the coming months.
In the UK:
Overall export sales decreased for the ninth consecutive month, albeit to the least marked extent since January. Goods producers widely reported a negative impact on global demand for manufacturing items in the wake of US tariff announcements, with shipments delayed and investment decisions postponed. Manufacturers also noted that rising competition in international markets had constrained export order intakes.
Service providers also recorded a decline in new work from abroad in July, but the rate of contraction was only marginal. While survey respondents mostly noted subdued overseas demand, some firms commented on successful efforts to diversify into new export markets in response to weak domestic sales.
Japan: Stronger service sector growth offsets fresh decline in manufacturing output
At 51.5 in July, the headline seasonally adjusted S&P Global Flash Japan PMI Composite Output Index was unchanged from June and signalled a further modest increase in overall private sector output. Business activity has now risen in each of the past four months, with the rate of expansion slightly quicker than seen on average over the first half of 2025.
A solid and accelerated rise in service sector activity contrasted with a renewed drop in factory production during July. Improved activity levels were generally linked by survey respondents to firmer demand conditions and increased client numbers. However, lingering uncertainty over future US trade policy and general market malaise were cited as key factors that had dampened the performance of the manufacturing industry.
New business across Japan’s private sector as a whole rose at a pace that, though marginal, was the strongest in three months. As was the case for output, this reflected a sustained rise in new work placed with services companies, as factory orders continued to decline.
At the same time, there was a broad-based reduction in new orders from abroad, with manufacturing firms registering a steeper decline than service providers. Overall, new export business fell at a modest pace that was the most pronounced in nine months.
Overall business confidence regarding the year-ahead weakened during July, hitting the second-lowest level since August 2020 (after April 2025). Lower levels of optimism were seen across both the manufacturing and service sectors, with companies often expressing concerns over US trade tariffs and the potential impact on demand. A shrinking population, labour shortages and high costs were also cited as headwinds to growth.
Subsequently, Japanese private sector firms adopted a more cautious stance regarding staff hiring, with overall employment rising at a marginal rate that was the weakest in a year-and-a-half.
Although the rate of input cost inflation across the private sector as a whole eased to its weakest in just over four years, it remained sharp overall. Firms often mentioned that higher labour, fuel and raw material costs had pushed up expenses in the latest survey period. As a result, companies increased their selling prices again in July. At the composite level, the rate of output charge inflation slowed from June but was nevertheless solid overall.
Trump’s Japan Trade Deal Raises Fears He Gave Away Too Much
US industries and protectionists are raising alarms with President Donald Trump’s pact with Japan, saying it risks undercutting his stated goals of rebalancing America’s trading relationships and reviving domestic manufacturing. (…)
The president’s decision to grant Japan relief on automobiles, however, provoked criticism that the agreement wouldn’t address the main source of the US’s trade deficit with Japan even as it disadvantages Detroit’s Big Three. Around 80% of the US-Japan trade gap is in cars and car parts.
Tuesday’s announcement marked the latest signal that Trump is willing to negotiate on industry-specific duties on products including chips and pharmaceuticals, potentially undermining the most durable pillar of his tariff strategy.
The reaction underscores the risks of the president’s transactional negotiating style. Industries that have championed much of Trump’s trade strategy and stand to benefit from robust levies on foreign rivals could be left in the lurch as his plans shift.
“Any deal that charges a lower tariff for Japanese imports with virtually no US content than it does North American built vehicles with high US content is a bad deal for the US industry and US auto workers,” said Matt Blunt, president of the American Automotive Policy Council that represents Ford Motor Co., General Motors Co. and Stellantis NV.
Trump defended his approach, which resulted in a deal to reduce Japan’s country-specific rate to 15% and put US levies on cars and parts at the same level — lower than the 25% global charge on vehicles.
“I WILL ONLY LOWER TARIFFS IF A COUNTRY AGREES TO OPEN ITS MARKET. IF NOT, MUCH HIGHER TARIFFS! Japan’s Markets are now OPEN (for first time ever!). USA BUSINESSES WILL BOOM!” Trump posted.
His Commerce Secretary, Howard Lutnick, argued in a Bloomberg Television interview on Wednesday that it was also ratcheting up pressure on South Korea and Europe to make additional concessions or risk their automakers being left at a significant disadvantage. And White House Press Secretary Karoline Leavitt said Trump’s approach was breaking down barriers for US products abroad. (…)
Even so, automakers and other industry stakeholders were crying foul Wednesday. They warned that giving Japan an unlimited reduction on auto tariffs undermines the use of those levies not just for cars, but also metals, semiconductors and other goods.
“Unlimited imports at tariff rates below existing Section 232 rates critically undermine” the intention of the law and could actually encourage offshoring, said Jon Toomey, executive director of the Coalition for a Prosperous America, an advocacy group representing import-threatened industries that supports tighter trade controls.
The provision on Japanese autos is far more expansive than the steel and aluminum tariff reduction Trump gave the UK, which allows a limited quota of imports to enter the US at a reduced rate. (…)
Other countries already are clamoring for sectoral tariff relief, and the US-Japan trade deal sends a signal that they are up for negotiation, people familiar with the matter said. Two of those individuals predicted the agreement will also add leverage to the auto and oil industries’ pleas for relief from steel duties.
“It doesn’t make sense to allow for unlimited vehicle imports at 15%, while charging rates of 25% on auto parts and 50% on steel,” Toomey added. (…)
The US-Japan deal’s emphasis on investment suggests the promise of more revenues has taken priority over the push to protect domestic industries, one person familiar with the matter said.
While direct foreign investment in the US could help expand domestic manufacturing and artificial intelligence capacity, it won’t necessarily make the country’s exports more competitive on its own.
And some analysts raised doubts about whether Japan’s promises to open its markets to US products would prove meaningful. (…)
Even so, a major impediment to US auto sales in Japan is the American designs themselves — not just trade barriers. Put simply, Japanese consumers are less interested in driving Fords and GMs than Americans are in Toyotas and Hondas. Japan sells the US about 84 cars for every one the US sells there.
“American cars that are big just don’t comport well with the needs, desires and demands of the Japanese public” said Colin Grabow, an associate director at the Cato Institute’s trade policy center. “It’s unclear what the payoff here is.”
The WSJ Editorial Board:
(…) The new tariff rate is good news only as relief from 25%. This is still a 15% tax increase on imports from Japan. (…)
By the way, more investment inflows by definition mean a larger trade deficit in the U.S. balance of payments. Has someone told the President about this? (…)
One positive development is the apparent reduction in U.S. auto tariffs from 25%. Perhaps the Administration is noticing that forcing Americans to pay higher prices for the cars they want to buy isn’t a political winner. Yet the 15% rate still marks a substantial increase over the 2.5% tariff that applied to passenger cars before Mr. Trump took office. The U.S. already applies a 25% tariff on imported trucks.
This highlights the economic bramble into which Mr. Trump has stumbled with his tariffs-first-negotiate-later approach to trade. U.S. auto makers are worried that Japanese companies will enjoy preferential tariff rates while Detroit could be stuck paying 25% on imports of cars and parts that U.S. companies ship from Mexico and Canada. (…)
By the time this trade war ends, if it ever does, the average U.S. tariff rate may settle close to 15% from 2.4% in January. That’s an anti-growth tax increase. The question for Trumponomics now, as in the first term, is whether the pro-growth elements of his tax and deregulatory agenda overwhelm the tariff damage. (…)
Tourists Tame Their Shopaholic Ways, If They Even Come to the US
(…) President Donald Trump’s global trade war and border policies — combined with broader economic uncertainty — are threatening billions of tourism dollars. Bloomberg Intelligence estimates almost $20 billion in retail spending is at risk this year.
Some travelers are avoiding the US altogether, and of those who are coming, many are rethinking their budgets. Although some major currencies have recently gained against the dollar, international visitors are still confronting years of US inflation that has driven up the price of hotel stays and restaurant meals, leaving less money in their pockets for shopping.
Travel-related spending, which typically grows each year, has been virtually flat this year through May when compared to the same period in 2024, data from the US International Trade Administration show. Meanwhile, foreign arrivals to the US by air were down 6.6% in June compared to last year, according to the ITA. (…)
“Compared with Europe, it’s unbelievable,” said van der Meer, 64, who’d just visited the Macy’s store near the Empire State Building. “Food is very expensive, alcohol is very expensive — I think in Europe we pay two times less than here.” (…)
Tariff Risk Drives Another Round of Asia Forecast Downgrades Southeast Asia will be hit hardest by worsening trade conditions and persistent uncertainty, the ADB warned
The Asian Development Bank and multilateral organization Asean+3 Macroeconomic Research Office, or Amro, both lowered growth projections for major Asian economies, citing the impact of U.S. trade policy.
Asia-Pacific has weathered a tough external environment this year, “but the economic outlook has weakened amid intensifying risks and global uncertainty,” said ADB chief economist Albert Park.
Strong domestic demand and export front-loading supported regional economies in the first half of the year, but that momentum is expected to weaken, the Philippines-based multilateral bank said in a report Wednesday.
The ADB now projects gross domestic product growth for developing Asia at 4.7%, down from April’s forecast of 4.9% and the 5.1% expansion recorded in 2024.
Next year, growth in developing Asia, which comprises 46 ADB members including China, South Korea and India, is forecast to slow further to 4.6%.
Southeast Asia will be hit hardest by worsening trade conditions and persistent uncertainty, the ADB warned.
Although several Southeast Asian nations have negotiated for lower tariffs, analysts say that won’t offset the blow of high trade barriers, economic fragmentation and policy shocks.
Growth in Vietnam, the first to get a deal, is still expected to slow through 2025 and 2026 as U.S. tariffs dampen export demand. The ADB cut Vietnam’s GDP growth projections to 6.3% in 2025 and 6.0% in 2026, from 6.6% and 6.5%, respectively.
Those who have yet to reach a compromise, such as South Korea or Taiwan, face significant “reciprocal” tariffs on U.S.-bound exports if no agreement is reached by Aug. 1. The temporary trade truce between the U.S. and China is also set to expire in August.
“A renewed imposition of the U.S. reciprocal tariffs or a re-escalation in US-PRC [People’s Republic of China] trade tensions could reduce regional growth by 0.5 to 1.4 percentage points,” the ADB said.
A faster deterioration in China’s property market also poses a risk to regional growth, it added. (…)
For now, it maintains its growth forecasts for China at 4.7% this year and 4.3% in 2026. Beijing has a target of 5% for this year.
Tariff pressures also led ADB to trim growth views for India to 6.5% and 6.7% in 2025 and 2026, respectively. South Korea’s forecast was lowered to 0.8% this year and 1.6% the next year. (…)
The resulting global slowdown will further impact ASEAN+3, which includes the 10 Association of Southeast Asian Nations members, plus China, Japan, and South Korea. Amro expects regional growth to slow to 3.8% this year and 3.6% next year.
Under a scenario where U.S. tariffs on China revert to April 2 levels, BRICS-aligned economies face an additional 10% duty, and previously exempt goods incur a 25% levy, growth could drop below 3% next year, Amro estimates.
Non-tariff protectionist measures, such as stricter investment regulations, could magnify the impact, it added.
European Firms Becoming More Reliant on China, Chamber Head Says
(…) “In order to have the best product at the most attractive price, you obviously need to source the components where you get the best components at the most attractive price. And in many, many cases that is here in China,” said Jens Eskelund, president of the European Union Chamber of Commerce in China.
“So we see actually in many ways that European business is becoming not less dependent, but perhaps more dependent on China,” he said in an interview with Bloomberg TV on Thursday. More than a quarter of the group’s members are increasingly onshoring in the Asian country, he added. (…)
European Commission President Ursula von der Leyen told Chinese leader Xi Jinping that the bloc’s ties with his country “have reached an inflection point,” illustrating what’s at stake in their summit shadowed by tensions spanning trade to the war in Ukraine.
“As our cooperation has deepened, so have the imbalances,” von der Leyen said on Thursday, according to her prepared remarks. The head of the European Council, Antonio Costa, called on China “to use its influence on Russia to respect the United Nations Charter and to bring an end of its war of aggression against Ukraine.”
“Rebalancing our bilateral relation is essential,” von der Leyen said. “To achieve this, it is vital for China and Europe to acknowledge our respective concerns and come forward with real solutions.”
The first in-person EU-China summit since 2023 is exposing a divide between the bloc and Beijing just months after earlier signs of a possible detente. In his opening remarks, Xi said their ties are “at a historical juncture,” urging stronger trust and communication amid global uncertainty, state broadcaster CCTV reported.
Xi said he was hopeful the EU will keep its trade and investment markets open while refraining from using restrictive economic tools, according to the official Xinhua News Agency. (…)
“China and the EU have extensive common interests and no fundamental conflicts. No matter how the international landscape evolves, cooperation should be the keynote and partnership the correct definition of China-EU relations.” (…)
The strains flared into view in April with Beijing’s decision to impose export controls on rare earth magnets, which shook European car companies and other sectors. In its statement after Thursday’s talks, the EU took aim at a range of Chinese trade policies, demanding it end investigations into pork, brandy and dairy that it called “unjustified and retaliatory” and asked China to lift the export restrictions imposed on rare earth magnets.
The EU inflamed trade tensions when it imposed tariffs on Chinese electric vehicles last year in a bid to ward off a flood of cheap imports. In response, China launched anti-dumping probes into European brandy, dairy and pork.
Brussels also takes issue with what it considers as Beijing’s support for Moscow. The EU on Friday sanctioned two Chinese banks and five China-based companies as part of its latest measures against Russia.