2 May 2025
Eurozone's robust Q1 growth, US tariff-induced recession, inventories and storage to the rescue and major insolvencies further on rise
Summary
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In summary:
Eurozone: Robust growth before tariffs bite
The Eurozone economy started 2025 with strong growth momentum (+0.4% q/q), surpassing expectations due to robust performances in Spain, Ireland and Italy while core Europe lagged behind. Germany showed a modest recovery (+0.2% q/q) driven by consumer spending and investment, in contrast to France's sluggish growth affected by reduced consumer and government spending. Overall Eurozone growth was supported by rising exports, particularly to the US ahead of anticipated tariff hikes. As challenges still loom amid trade restrictions and the US recession, we continue to expect subdued Eurozone growth of +0.8% in 2025. With inflation cooling further, we maintain our view of the ECB cutting its policy rate below neutral to 1.5% by September.
US: Tariff-damage increasingly visible, but the Fed will wait out the storm
Q1 GDP dropped slightly (-0.3% q/q annualized), mainly due to a pre-tariff surge in imports (41% q/q annualized). Underlying domestic demand remained solid, with the consumer (+1.8%) frontloading purchases ahead of the tariffs as well as firms for industrial supplies (business investment +9.4%). But data at US ports indicate that inbound shipments started to fall in April as spending started to weaken. Moreover, US households are as gloomy as during the 2022 inflation spike and businesses are reporting falling capex plans. The US is expected to flirt with a recession over Q3-Q4 2025. With inflationary pressures rising, the Fed will remain on hold next week. We expect the Fed to (cautiously) start the easing cycle in October.
Inventories: It is costly to stockpile your way out of a trade war
We estimate that the average cost of inventory for main consumer industries in the US varies between 2 to 3 months of turnover, offering them a buffer to hedge against short-term swings in demand. While certain sectors are benefiting from strong demand and seizing the moment to build buffer stocks (i.e. defense, transport equipment), others are retrenching because they fear either a profitability squeeze or have already high inventories (e.g. appliances, auto, textiles) or are simply unwilling to stockpile (e.g. pharma, telecom). To mitigate the impact of tariffs, firms are increasingly turning to storage facilities in free-trade zones and bonded warehouses as a way to defer entry taxes rather than stockpiling. The rise of the vacancy rate of storage solutions (8.5%, +330bps y/y) suggests limited interest for reshoring.
More than one large bankruptcy per day since the beginning of the year
122 companies with turnover of EUR50mn or more filed for insolvency in Q1 2025. This is a record high since 2015. Western Europe continues contribute the most (+10 cases y/y to 74) while the US leads when it comes to the size of insolvent companies, accounting for 8 out of the top 20 insolvencies in Q1 2025. Overall, services and retail were hit the hardest, particularly in Western Europe and North America, followed by construction in Western Europe and Asia. The trade war and structural shifts could push 2025 to set a new record for large insolvencies, raising risks of a domino effect on suppliers and subcontractors.
Authors
Ana Boata
Allianz Trade
Allianz Trade
Maxime Darmet
Allianz Trade
Allianz Trade
Guillaume Dejean
Allianz Trade
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Weekly on Allianz markets, macro, sector & insurance research by Ludovic Subran
