The Eurozone expects GDP growth in Q2, FY25 to remain negative as retail sales declined 0.7 per cent M-o-M in May 2025. This coincides with a -0.3 per cent drop in overall services activity in April. This concrete data supports expectations of negative GDP growth for the second quarter (April-June).

While retail sales demonstrated strength early in the year, fueled by wage growth despite consumer apprehension, May's figures present a ‘reality check.’ Though potentially influenced by holiday timing, this decline clearly indicates a downward trend in consumer spending.

Despite this downturn, the potential for a retail sales rebound remains significant due to recovering purchasing power across the Eurozone. However, stubbornly high saving rates, driven by persistent uncertainty and low consumer confidence, are currently hindering a stronger recovery in European retail.

Further compounding the economic concerns, Eurostat's broader services data for April reveals a weak start to the second quarter. The -0.3 per cent decline from March was primarily driven by substantial drops in ICT and real estate activities. While the Purchasing Managers' Index (PMI) for services showed slight improvement in June, it suggested stagnation rather than a robust recovery.

The confirmed weakness in the services sector, coupled with the retail sales slump, reinforces the view that GDP growth in Q2, FY25 may indeed be negative. This outlook is further underscored by the potential for a reversal in the frontloading of US imports, which could negatively impact the trade balance. Following a strong Q1, economic activity in Q2 is likely to serve as a ‘reality check,’ with the overall trend remaining sluggish.