Category: News

Eurozone recession fears escalate as more German factories shut down July 18, 2025. Eurozone concerns that recession is on the way have deepened with another wave of German factories announcing closures and cutbacks.

The industrial heartland of Europe is struggling with a combination of stubbornly high energy costs, a global slump in demand and the growing effect of international trade tensions that are threatening to darken the outlook for the bloc’s economy.

Germany’s Industrial Engine Stalls

And Germany, long the powerhouse of Europe’s economy and highly dependent on manufacturing and exports, is leading the way in this industrial slowdown. Recent data, such as the PMIs, which have remained below the 50-point mark separating expansion from contraction, are indicative of continued deterioration in activity levels.

The last of the July PMI reports will be published early next month, but anecdotal evidence from the field is bleak, with reports of falling new orders and lower capacity use.

A few things help explain why we’re seeing such a severe downturn:

• High Prices for Energy: Yet, while industrial energy prices in Germany have moderated somewhat from their peak levels, they are well above those in competitors like the U.S. and China. Among the most seriously hit are the energy-intensive sectors, such as chemicals, steel and glass, which are left with no other option than to reduce production or move abroad. Germany’s previous decision to wind down nuclear power and its previous dependence on cheap Russian gas have left it more exposed to energy price shocks.
• Sluggish Global Demand: The global economic-growth slowdown, particularly in key markets such as China, and a retarded level of demand overseas have exacted a real toll on German exports. With global trade splintering and demand for manufactured goods cooling, Germany’s export-dependent industries are struggling to find buyers.
• Deepening Trade Wars: Adding to this is the froth of an intensifying US tariff regime under President Trump. With tariffs threatened – or already imposed – on more products and more countries, German exporters confront added costs and risk, adding even more drag to international trading volumes.

These will play to a visible de-industrialisation, with more and more German companies either going bankrupt or simply moving abroad with their production.

Broader Eurozone Implications

To be sure, German weakness inevitably radiates across the entire Eurozone. Germany’s industrial malaise is a threat to the entire bloc; its manufacturing output and demand for intermediate goods spill over directly into supply chains and economic activity in surrounding countries.

Although the European Central Bank (ECB) has started cutting rates, rate cuts have limited effectiveness in stimulating an economy grappling with domestic structural and external headwinds. The Eurozone is already expected to turn in only modest economic growth in 2025 (in the range of 1.1%-1.3%), and the deepening German industrial contraction may press the entire region to or even into a technical recession.

Analysts are also becoming increasingly jittery about “stagflation” — stunted growth and chronic inflation. The current trade tensions and the disruptions to the global supply chain could keep prices high, even as economic activity slows, leaving policymakers with a stubborn problem.

As Eurozone ministers of finance and central bankers follow the situation, the rapidly souring industrial outlook in Germany offers a flashing red warning light about the economic security of the region as a whole.

The Bank of England (BoE) rattled the global currency market today, July 17, 2025, when it shocked the world with an unanticipated 25-basis point reduction in its benchmark interest rate to 4.00%.

The move, which did not take place at the Monetary Policy Committee’s (MPC) typical monthly get-together, caused the pound to fall sharply and plunge to the lowest levels in 2021.

The Bank of England’s unexpected rate cuts have sent the pound crashing to its lowest levels since 2021. Discover the implications for the economy.

The Surprise Decision and Market Response

BoE’s MPC had been widely expected to keep rates unchanged at its next scheduled meeting on August 7, with market consensus suggesting a first cut in late 2025 or early 2026 – especially after the release of UK inflation figures in July, which showed an unexpected rise to 3.6% in June.

But the bank attributed its unscheduled move to growing concerns over the UK’s economic prospects in general and the effect of global trade tensions and slowing growth in particular.

“In light of the increasing downside risks to the global and U.K. outlooks and with domestic inflationary pressures remaining subdued, the Committee agreed that it was appropriate to take some action to support demand in the U.K. economy and to ensure that the recent fall in inflation did not undershoot the 2 per cent medium-term inflation target,” the BoE said in a brief statement. This is an even more pessimistic tone than had been previously communicated.

In response, the pound sterling (GBP) tumbled versus all of its peers in the spot market. Versus the dollar, GBP/USD lost ground rapidly, closer to its 2021 Alice lows and the 1.28-1.29 level. The pound was hit hard against the euro. This drop is a clear reflection of investor concern over the unforeseen move, expressing those fears over the UK’s economic health and a greater likelihood of additional monetary easing.

Why the Early Cut?

The BoE’s decision, which followed the Fed’s stance by a day, was said to be driven by domestic considerations such as growth and employment, yet market observers are searching for the actual catalyst for such an off-cycle move. Possible factors include:

• Fading Growth Outlook: While some resilience became apparent, the latest data would have still suggested that a sharper contraction in activity or stagnation was taking place, with recent US tariffs on UK trade adding to the pressure.
• Rising Forces in Trade Wars: We might add the incipient trading war that would evolve between the US and most of its key trading partners, which could have already exacerbated a downside threat to UK exports and economic stability that seemed likely to have been modelled before.
• Breaking Away From Other Central Banks: The European Central Bank (ECB) has been lowering rates, while the Federal Reserve has held steady. The BoE might be getting ahead of the curve to avoid a firmer pound from undermining UK exports.
• Consumer Spending Worries: The recent publication of inflation data, though higher, could have hidden weaker consumer confidence or spending power – something the BoE tried to tackle.

Implications for the UK Economy

The surprise rate cut is a double-edged sword for the UK economy. On one hand, it may offer a long overdue boost to borrowing and investment as a way of helping support businesses and homeowners who have been clobbered by high mortgage rates.

However, with the collapsing pound, imports will become dearer, which may prompt a rise in inflation and consumer purchasing power getting hit.

The cut brings immediate respite for homeowners on a variable-rate mortgage, but savers are set to experience a further decline in returns. Import-dependent businesses will face higher costs, and exporters might benefit from a currency that is weaker.

The BoE’s shock is a turning point in its monetary policy, showing up with solutions to counter economic headwinds. The BoE’s next MPC meeting is scheduled for August 7, and analysts will then be looking for more detailed forecasts and possible hints at the central bank’s forward guidance in light of this week’s speech. Sources