Last Week: Key Global Events

Last Week: Key Global Events

Edited by Simisola Fagbola, Econoday Economist

The Economy

Monetary policy

The European Central Bank held interest rates steady in July, signaling cautious confidence in its inflation-control strategy. With inflation now at the 2 percent medium-term target, the ECB opted to maintain the deposit, refinancing, and lending rates at 2.00 percent, 2.15 percent, and 2.40 percent respectively. Easing domestic price pressures and slowing wage growth suggest that past rate cuts are being felt throughout the economy, helping to anchor inflation without derailing growth.

Yet, despite this stability, the ECB is not declaring victory. The outlook remains clouded by global trade tensions and persistent uncertainty. Instead of outlining a fixed path, the Governing Council reaffirmed its data-driven, meeting-by-meeting approach, signalling flexibility and vigilance.

Balance sheet normalisation continues, with both the Asset Purchase Programme (APP) and the Pandemic Emergency Purchase Programme (PEPP) portfolios gradually winding down. Meanwhile, the Transmission Protection Instrument remains in place as a backstop against market fragmentation across eurozone countries.

In essence, the ECB is treading carefully, balancing progress on inflation with a readiness to act if conditions worsen. Its current stance reflects a strategy of watchful waiting, ensuring inflation remains on target while retaining tools to counter unexpected shocks.

GDP

Advance estimates for South Korean GDP show the economy grew at a solid pace in the three months to June, rebounding from contraction at the start of the year. GDP rose 0.6 percent on the quarter after falling 0.1 percent previously, with year-over-year growth picking up from a fall of 0.1 percent to an increase of 0.5 percent. PMI surveys showed contraction in the manufacturing sector over this period, largely reeling the impact of the escalation in global trade tensions since the start of April.

At their most recent policy meeting earlier this month, officials at the Bank of Korea left policy rates on hold at 2.50 percent. The statement accompanying the decision showed that officials were reluctant to ease policy further because of concerns about house price growth in the Seoul area and higher household debt. Measures introduced by the South Korean government to slow the property market appear to have has some initial effect, but officials argued that it is appropriate to give these measures more time to operate before lowering policy rates again. Although they reiterated that they have a “rate cut stance”, officials concluded that it is necessary to “adjust the timing and pace” of any further rate cuts until the impact of the government’s property market measures are clearer.

Demand

The impact of trade tensions was felt by Canadian retailers in May, when their sales contracted 1.1 percent from April, as expected. Much of the weakness was related to the auto sector that had been performing well previously.

Advance indicators point to a 1.6 percent recovery in June.

The report shows that 32% of retail businesses were impacted by the trade tensions in May, compared with 36% in April. Price gains, lower product demand and higher expenses for raw materials, shipping or labor are the most common impacts reported by retailers.

In volumes, more relevant to real GDP, retail sales were down an even larger 1.4 percent on the month.

Advance GDP data had already pointed to a decline in retail trade in May. Looking ahead, the Bank of Canada Canadian Survey of Consumer Expectations (CSCE) shows that the CSCE indicator – measuring the opinions of Canadian consumers about their spending plans, the labour market and their personal finances – declined in the second quarter due to weakening spending intentions related to tariffs and economic uncertainty. The survey also shows that more consumers are planning to cut spending in response to their inflation expectations. And that’s the other side of the equation: core inflation is holding above the 2 percent BoC target, leaving the BoC between a rock and a hard place, which might lead the central bank to give itself more time to assess the impact of tariffs as the deadline for negotiations between Canada and the U.S. approaches. The fact that core sales held up also provides an argument to continue to wait.

In May, retail sales declines were concentrated in three sectors, led by a 3.6 percent drop in motor vehicles and parts, without which the decline in retail sales would have been limited to 0.2 percent. The decline comes after two consecutive months of increases. Gasoline and fuel was another key downward contributor, with sales down 1.4 percent.

Core sales, excluding gasoline stations, fuel vendors and auto and parts dealers, were unchanged on the month. Food and beverages saw a 1.2 percent drop, the only core sector to report a monthly decline.

Sales increased in all other core sectors. Housing-related sales increased on the month, with building material and garden equipment and supplies up 1.9 percent, the largest monthly gain among core sectors. Sales of furniture, home furnishings, electronics and appliances were up 0.5 percent.

E-commerce sales were down 1.7 percent in May, making up 6.2 percent of total retail trade, down from 6.3 percent in April.

UK retail activity showed strong signs of recovery in June 2025, with sales volumes rebounding by 0.9 percent (0.5 percent below the consensus forecast) after a sharp 2.8 percent decline in May. The warm weather played a key role in boosting consumer demand, particularly in food stores and fuel stations, where volumes increased by 0.7 percent and 2.8 percent, respectively.

Online retailers also capitalised on seasonal promotions, pushing non-store sales to their highest point since February 2022.

However, while total volumes rose 1.7 percent year-over-year (0.1 percent below the consensus), they remained 1.6 percent below pre-pandemic levels, underlining an incomplete recovery in the retail sector. Non-food stores posted a modest 0.2 percent monthly increase, as declines in household goods and second-hand retailers offset gains in clothing and department stores, likely due to lower in-store foot traffic. Online spending increased by 2.3 percent month-over-month, accounting for 27.8 percent of total retail sales, a subtle but notable rise from May’s 27.4 percent.

While the sector shows resilience, the uneven performance across categories reflects the continued influence of consumer habits shaped by weather, online trends, and post-pandemic economic shifts. 

Housing

US sales of new single-family houses in June are estimated at a 627,000 annual rate, not much of an improvement on the unrevised 623,000 reported for May, and below the 650,000 expected in the Econoday survey of forecasters.

June’s new home sales rate is just 0.6 percent better than May, and is 6.6 percent lower compared to the June 2024 rate of 671,000.

The median sales price of new houses sold in June was $401,800 compared to $422,700 in May, and $414,000 in June 2024. The average sales price was $501,000.

The inventory of new houses for sale rose from 505,000 at the end of May to 511,000 at the end of June. The months’ supply rose from 9.7 months in May to 9.8 months at the current sales rate. Inventory was at 8.4 months of supply in June 2024.

Sentiment

German Ifo business sentiment showed a modest uptick in July, with the business climate index rising slightly to 88.6 from 88.4 in June, 0.6 points below the consensus forecasts. While companies reported improved satisfaction with current conditions, their outlook remained cautious, reinforcing the narrative of a slow and uneven recovery.

Manufacturing offered the most optimism, as firms reported a better business situation and improved expectations. Still, weak order inflows and only a marginal rise in capacity utilisation (77.2 percent) point to lingering fragility. Construction also saw a morale boost, yet the persistent shortage of orders casts a shadow over its progress.

In contrast, the services sector lost momentum, dragged down by declining activity and falling expectations, particularly in the IT sector. A brighter spot emerged in the transport and logistics sector, which bucked the trend with improved sentiment. Retailers remained wary, with expectations deteriorating despite slight gains in current assessments.

Overall, Germany’s economic recovery continues to inch forward, but with sectoral disparities and underlying structural concerns, especially in order backlogs, acting as headwinds. Business optimism is cautiously returning, but it has not yet strengthened enough to drive a robust rebound.

Business Surveys

In July, the Eurozone economy recorded its strongest private sector growth in nearly a year, with the composite PMI output index rising to 51.0, 0.2 points above the consensus and its highest level in 11 months. This modest but broad-based expansion was underpinned by a stabilisation in new orders, ending over a year of continuous contraction. Services led the growth, reaching a six-month high, while manufacturing output remained just below the growth threshold at 49.8, despite hitting a 36-month high in headline PMI.

Employment edged up again, driven by robust hiring outside Germany and France. However, job losses in manufacturing persisted, albeit at a slower pace. Encouragingly, the backlog of work showed only a slight decline, suggesting capacity pressures are easing.

Price pressures continued to moderate. Input cost inflation fell to a nine-month low, while output prices rose modestly, matching June’s pace. Manufacturing prices stabilised after two months of decline, while service providers eased their rate of price increases.

Although overall confidence dipped slightly from June’s peak, sentiment in Germany and other parts of the eurozone improved. This report signals cautious optimism. Underlying demand is firming, but persistent weakness in manufacturing and export orders tempers expectations of a strong rebound.

US Review

Housing Sector Looking Weak

By Theresa Sheehan, Econoday Economist

The health of the US housing market is closely tied to the direction of mortgage rates. Low consumer confidence and concerns about job security are combined with elevated prices and limited supplies of the more sought-after units at a time when mortgage rates remain relatively high to keep home sales on the soft side.

The Freddie Mac average rate for a 30-year fixed rate mortgage was about 6.8 percent in June, the same as 6.8 percent in May. Rates have dipped a bit since then and the July rate is averaging around 6.7 percent.

Sales of new single-family homes in June manage to eke out a 0.6 percent increase to 627,000 at a seasonally adjusted annual rate after 623,000 in May, the lowest levels since 621,000 in October 2024. The average Freddie Mac rate for a 30-year fixed rate mortgage was at 6.5 percent in October 2024 after 6.2 percent in the prior month and rose to 6.8 percent in November 2024.

The demand for single-family homes that drove home construction in the post-pandemic period has faded significantly.

Current homeowners who have mortgages taken out when rates were below the 6 percent mark are unwilling to give up their current properties. However, having built a lot of equity over a few short years, selling at a time of higher mortgage rates looks less risky. The lack of supply for existing properties had spurred demand for new building. Now that the supply of existing properties is improving, homebuilders are cutting back in expectation of weaker sales.

Sales of existing homes are down 2.7 percent in June to 3.93 million units at a seasonally adjusted annual rate, with sales of existing single-family homes down 3.0 percent. Prices have risen steadily in the first half of 2025. Potential homebuyers – especially first-time buyers – are going to wait for a dip in mortgage rates and moderation in prices before committing to a purchase.