Economic Sentiment: Eurozone Stabilizes at Low Level in May

A Modest Recovery Driven Solely by Services

The movement mainly comes from the services sector, while sentiment remains weak in manufacturing and retail, two components traditionally sensitive to final demand and pressure on margins.

Expectations for increases in the selling prices of goods and services are receding after the peaks observed in March and April. This decline could, in the coming months, limit the transmission of energy cost overruns to underlying inflation, which is a point of focus for analyzing the ECB's monetary policy.

However, it is important to remember that this indicator is based on opinion surveys that are subject to revision and exhibit high short-term volatility. It does not automatically predict the exact profile of the GDP of the area.

Energy Dependence: The Achilles' Heel of the Zone

European business sentiment remains structurally constrained by energy price developments. Before the outbreak of the war, approximately 20% of global oil and LNG flows passed through the Strait of Hormuz, illustrating the eurozone's immediate sensitivity to any tensions in the region.

Brent crude is trading at $92.67 a barrel on Friday, down 1.1% on the session and 10.5% for the week, while WTI is down 1.4% at $87.64, marking a 9.2% weekly decline. This decrease reflects the market's reaction to discussions about a 60-day extension of the ceasefire between the United States, Israel, and Iran, and potential easing of restrictions at Hormuz.

However, the agreement remains at the stage of a memorandum of understanding not yet fully approved politically. The actual oil and LNG flows through the strait remain well below normal and could stay volatile, as demonstrated by the recent sequence of decline and rebound in Brent prices.

US Economic Growth Stalls, Persistent Inflation: An Unfavorable Global Climate

The external context provides only limited support to the eurozone. In the United States, the second estimate released by the Bureau of Economic Analysis shows real GDP growth of 1.6% on an annualized basis in the first quarter of 2026, revised down from 2.0%. Thus, the American dynamic is proving weaker than anticipated.

On the price front, the April PCE index stands at 3.8% year-on-year, up from 3.5% in March, marking the strongest annual increase since May 2023. The monthly change is +0.4%, moderating from March's +0.7%, but insufficient to dismiss the thesis of persistent inflation fueled by energy.

This combination of slowing U.S. growth and stubborn inflation heightens the hawkish tone of several Fed officials, including Neel Kashkari, who recently spoke of a global “inflationary shockwave.” For the eurozone, where economic sentiment struggles to converge toward its historical average, this environment of persistently high rates and uncertain energy prices maintains a cautious bias on growth prospects.