Macroeconomic Outlook
Per Jun 25
Macroeconomic Outlook
After 2 years in recession, Germany’s GDP growth is expected stagnant in 2025 with slight growth only expected from 2026. GDP growth of the US and China is expected to stabilize from 2025 onwards on a lower level compared to previous years
Real GDP growth forecast for selected geographies (per Jun-25)
- The global outlook remains clouded by geopolitical instability, persistent trade tensions and the lagged effects of monetary tightening on real economic activity.
- Following two years of recession, the German economy is expected to stagnate (0.0% growth) in 2025. The subdued outlook reflects persistent structural headwinds, including weak investment, falling exports, elevated energy costs and ongoing geopolitical uncertainty. Political stimulus is yet to take effect. From 2026, only a modest recovery is projected, with growth rates of c. 1.0-1.5% between 2026 to 2028. Potential large scale public investment in infrastructure and defense as well as intended political stimulus on the overall economy might support the German economy going forward.
Production outputs for the manufacturing industry (per Jun-25)
Unemployment rate for selected geographies (per Jun-25)
- In particular, Germany’s economical weakness subdued growth in the euro area in the past (0.9% in 2024) and going forward with an average projected growth rate of 1.3% annually through 2028.
- While US growth is expected to slow from 2.8% in 2024 to 2.1% by 2028, it remains comparatively stable. Forecasts for China indicate a gradual slowdown from 5.0% to 4.1% over the same period.
- Germany’s manufacturing output remains under pressure, further declining to an index of 86.7 by Jun-25, while the US maintained a rather stable 102.2. These trends reinforce concerns over deindustrialization, particularly in key sectors such as automotive, chemicals and machinery, which struggle with weak economic and export activity and growing competition from emerging economies, especially China.
Source: PwC Research, Board of Governors of the Federal Reserve System, Deutsche Bundesbank, International Monetary Fund (IMF), OECD, Statista
Easing inflation, stabilising energy and input costs and modest real wage growth support signs of improving private consumption
US and German consumer price index (per Jun-25, change y-o-y)
US Brent oil prices (in USD per barrel, per Jun-25)
- Headline inflation continues to ease gradually in both Germany and the US, reflecting the delayed impact of tighter monetary policy. As of Jun-25, the US Consumer Price Index (CPI) stands at 2.7%, indicating no notable pass-through from recent US tariffs to inflation yet. German CPI remains at or around the European Central Bank’s 2.0% target.
- The escalation between Iran and Israel led to a spike in energy prices in Jun-25 but eased off again end of Jun-25 / beginning of Jul-25, yet with uncertain outlook.
- Producer prices remain broadly stable, with a year-on-year decline of 1.3% in Germany and an increase of 1.7% in the US as of Jun-25.
- Compared to 2024, real wages continue to grow, but on a lower level as previously, indicating that currently there is no negative wage-price spiral. As of Jun-25, real wages rose by 1.6% year-on-year in the US and by 1.2% in Germany (Mar-25), strengthening purchasing power and supporting private consumption.
Producer price index for industrial products
(per Jun-25; change y-o-y)
Real wage growth
(per Jun-25, overall unweighted)
Source: PwC Research, U.S. Bureau of Labor Statistics, Federal Reserve Bank of Atlanta, Federal Reserve Bank of St. Louis, Statistisches Bundesamt, Statista, Investing, U.S. Energy Information Administration
In 2Q25, several central banks resumed rate cuts amid easing inflation, while the Fed held steady. Most recently, in Jul-25 ECB paused for the first time after seven rate-cuts in a row
Major central bank policy rates
Policy rate change by selected central banks
- Recent interest rate reductions by central banks reflect ongoing efforts to support economic activity amid easing inflation. In Jun-25, the European Central Bank (ECB) lowered its policy rate by 25 basis points, following earlier cuts in the first quarter of the year. In Jul-25, the ECB held interest rates steady at 2%, pausing its year-long policy easing cycle after eight cuts (seven of them consecutive) in the wake of rising US tariffs, making the economic environment particularly hard to predict.
- The Federal Reserve has held its interest rate range at 4.25 - 4.50%, as it waits for further clarity on inflation developments. Despite this pause, projections for the end of 2025 point to a potential decline to around 4.05%, signaling a cautious approach to monetary easing as inflationary pressures persist.
- Looking ahead, interest rate forecasts for late 2025 indicate a continued easing trend across major economies, with the ECB expected to lower rates to 1.90%, the Bank of England to 3.75% and the Bank of Canada to 2.5%. These anticipated adjustments reflect a coordinated focus on economic stability while managing inflation.
Maturity profile of German high-yield corporate bonds (in EUR bn)
Source: PwC Research, Board of Governors of the Federal Reserve System (US), ECB, BoE, Bloomberg, S&P Capital IQ , Reuters | 1) PBOC 7-Day reverse repo rate; 2) Main refinancing operations rate
During 1H25 US and European bond yields remained relatively stable at their respective levels amid ongoing policy uncertainty, geopolitical risk and rising concern over long-term fiscal stability in the US and UK
10y government bond yields
1y, 3y and 5y EUR swap rates (left) 1M, 3M and 6M Euribor rates (right)
- In 2Q25, 10-year government bond yields remained relatively stable across major economies. US and UK yields fluctuated within a narrow range, ending the quarter at 4.3% and 4.4%, respectively. Over 1H25, German and wider euro area yields increased slightly to 2.6% and 2.9%, respectively.
- Bond yields stabilised in 2Q25 after early volatility driven by renewed tariff concerns, fiscal uncertainty and geopolitical risks. As tensions eased in May-25, investor focus shifted back to central bank signals. Decreasing inflation and renewed expectations of monetary easing supported bond valuations, particularly in core markets.
- Following a period of declining rates throughout 2024, EUR swap rates remained largely stagnant in 2Q25. In parallel, Euribor rates continued to decline, aligning with the ECB's rate cuts over 1H25 and a cautious economic outlook.
Source: PwC Research, Bloomberg
Since 2024 the German residential real estate market started to recover with noticeable price increases despite low transaction volumes. In the US, residential real estate prices continue to rise
Real estate price indices (US & GER) 4Q20 = 100
German effective interest rate housing loans (per Jun-25)
German mortgage volumes (per Jun-25, in EUR bn)
- German real estate prices rose by 5.0% yoy while US real estate prices increased by 2.1% from 1Q24 to 1Q25.
- In 2Q25, the effective interest rate for housing loans in Germany slightly increased up to 3.7% due to expectations of slower policy rate decreases. This follows a period of sustained increases, with rates peaking above 4% in early 2024. Overall, interest rates remain elevated compared to historical lows.
- The US MBA 30-year contract rate remained relatively stable between 6.7% and 6.9% in 2Q25. Amid elevated borrowing costs, mortgage applications have declined by 51.8% since their peak in 2020.
- Mortgage volumes in Germany have declined by 38.4% since their peak in Mar-22 with some recovery since 2024 driven by policy rate reductions.
US MBA 30y contract rate
(per Jun-25)
US mortgage applications
(Purchase Application Index, per Jun-25)
Source: PwC Research, Deutsche Bundesbank, Bloomberg, Statista, Fed St. Louis, S&P/Case-Shiller U.S. National Home Price Index, Ifo Institute Munich, NAR
Equity markets were chasing new record highs during 1H25, but European M&A and IPO activity remains weak due to persistent investor caution
Development of major equity indices (index 26 Dec-22 = 100, per Jun-25)
European M&A volume by quarter (left) and European IPO volume by quarter (in USD bn, per Jun-25)
- At the beginning of 2Q25, equity markets suffered from the U.S. president’s announcement to raise custom duties on a wide range of imports. Following the pause of such introduction and the start of mostly bilateral negotiations, equity markets not only broadly recovered but chased new all-time highs.
- The Chinese SSE, previously marked by volatility, showed signs of stabilisation and recorded modest growth in 2Q25, supported by gains in tech and consumer stocks, amid targeted policy easing and more optimistic market expectations.
- In 2Q25, European M&A activity decreased compared to the same period last year, reaching $167bn – down from $224bn in 2Q24. Despite early signs of stimulated activity in 1Q25, strategic investors remain hesitant amid lingering geopolitical risks and tighter financing conditions.
- IPO activity in Europe remained subdued in 2Q25 compared to 2Q24, with total volume reaching only $1.8bn compared to $8.7bn in 2Q24. The ongoing low levels of IPO activity highlight persistent investor caution.
Source: PwC Research, Yahoo Finance, Eikon
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