Eurozone growth weakens further with French and German PMIs in contraction, while inflation forecasts for 2026 are raised to 3.1%.
Eurozone growth indicators have worsened, with French and German PMIs signaling contraction and the German IFO index near a five-year low. French composite PMI fell to 43.5 in May from 47.6, while Germany’s reading of 48.6 indicates ongoing economic shrinkage.
The European Commission revised its inflation forecast for the EU upward by a full percentage point to 3.1% in 2026, complicating the ECB’s policy outlook. GDP projections were also downgraded amid heightened economic pessimism linked to geopolitical tensions.
Markets currently price in over two 25 bps ECB rate hikes within six months, but Rabobank expects only one, citing the clash between weak activity and persistent price pressures.