Eurozone Economy Stabilizes in June 2025: PMI, German Data, and ECB Policy in Focus

HCOB Composite PMI: A Stabilization, Not a Recovery

The S&P Global Eurozone Composite PMI was revised up to 50.0 in June 2025 from May's 48.5, marking an end to two consecutive months of contraction . The final reading surpassed the flash estimate of 49.5, beating economist forecasts . However, the index at exactly 50.0 signals stagnation rather than expansion.

The improvement was driven by a recovery in the services sector. The final services PMI rose to 50.5 in June from 48.7 in May, returning to modest expansion . Manufacturing, while still contracting overall, did so at a less severe pace .

Germany's Role: Manufacturing Recovery, Services Still Weak

Germany, the eurozone's largest economy, was a major factor in the region's stabilization . The HCOB Germany Composite PMI rose to 50.4 in June (flash), up from 48.6 in May, just barely into expansion territory for the first time in three months .

• Manufacturing: The Germany Manufacturing PMI rose to 49.0 in June (flash and final, confirmed at 49.0), the highest since August 2022, but still below the 50.0 growth threshold . New orders in German manufacturing grew at their fastest pace in over three years, driven by rising domestic and international demand . The output index rose to a 39-month high of 52.6 .
• Services: The Germany Services PMI improved to 49.4 in June (flash), up sharply from 47.2 in May, signaling a much shallower contraction, though still in contraction territory .
• Assessment: HCOB Chief Economist Cyrus de la Rubia described the recovery as "cautious" rather than robust . The composite index moved into positive territory, but the underlying data shows a still-weak services sector and a manufacturing sector that is stabilizing but not yet growing .

ECB's Policy Pivot: Rate Hike to 2.25% in June 2026

The European Central Bank raised interest rates by 25 basis points at its June 11, 2026 meeting, taking the deposit facility rate to 2.25% . This was the ECB's first rate hike in nearly three years and a decisive pivot back to tightening after a period of easing that ended in June 2025, when the ECB had cut rates to 2.0% .

The reversal was driven by inflation pressures linked to the Iran war, which pushed eurozone inflation to its highest level in nearly three years . The ECB also revised higher its inflation forecasts while making small negative revisions to growth projections .

The outlook is for further tightening. Scotiabank analysts characterized the move as a hike that "will happen again soon," and the ECB Governing Council signaled readiness for additional tightening . Market pricing at the time pointed to 42 basis points of further tightening by year-end 2026 .

Eurozone Unemployment: Headline Low, Wide Disparities

The eurozone's aggregate unemployment rate held at a historic low of 6.2% in June 2025, stable month-on-month and down from 6.4% a year earlier . The EU-wide rate was 5.9% . However, these aggregated figures hide deep structural gaps:

In June 2025, Spain (10.4%) and Finland (9.3%) had the highest rates, while Malta (2.5%) and Czechia (3.0%) had the lowest . By May 2026, the highest rates had shifted slightly, with Finland at 10.8% and Spain at 10.3%, and the lowest rates observed in Germany and Austria . The youth unemployment rate across the EU stood at 15.2% in May 2026 .

Outlook and Implications

The June 2025 PMI data provided a snapshot of a eurozone economy that had stopped contracting but was not yet growing meaningfully. The recovery was narrowly based, with Germany's manufacturing sector showing the clearest signs of improvement, while services remained weak across the region. This fragile stabilization was short-lived, as the ECB was forced to hike rates a year later in response to an inflation shock from the Iran war. The labor market, meanwhile, continued to defy the economic slowdown at the aggregate level, but with wide and persistent disparities across countries. The data underscores the uneven nature of the eurozone's recovery and the challenge for policymakers in balancing inflation control with support for growth.