Economy in Brief

GfK consumer climate for Germany improves slightly to -29.8 in June from -33.1 in May. In terms of monthly point changes, it's a reasonable improvement month-to-month however this is now the 10th weakest monthly consumer climate reading over the last 25 years and so it's an extremely weak reading. Last month was an even weaker reading, but that was the 7th weakest reading all time for this index. All the other even weaker readings were during Covid. This is a very weak report, it ranks 286th out of 296 observations.

A very weak month despite some technical improvement GfK projects a climate figure for June, however, it's underlying data for components are up to date through May. As of May, economic expectations improved slightly to -11.2 from -13.7. Income expectations improved a lot more to -13.0 from -24.4. However, that -24.4 figure was a collapse from -6.3 the month before, so that the rebound in May still leaves a significant net decline over the last two months. We should not be too focused on the month-to-month improvement. Income expectation’s April reading was likely a shock reaction to global events in the Middle East. The propensity to buy index improved to -13.2 in May from -14.4 but once again it's a case of there still being a 2-month decline on the books since the March reading was -10.9 for the propensity to buy. The even weaker propensity to buy readings historically were all in the wake of Covid.

Very weak rank standing On the whole it's another week reading from the GfK survey. This is further underscored by the rank- or the count-percentile standing of the headline which stands in its lower 3.1 percentile. Economic expectations are in their lower 19th-percentile, income expectations are in their lower 13th-percentile and the propensity to buy is in its lower 23.9-percentile. All of these are rankings that are infrequently weaker than their readings in May.

Select European comparisons As a comparison I include the most up-to-date readings for Italy, France, and the UK on confidence. Italy and France have up-to-date readings through April; the UK has an up-to-date reading through May. The three countries all show declines in confidence from April to May; the UK shows a slight improvement from May to June. If we look at the most current readings, the percentile standing for Italy is a 50-percentile standing, which implies that the current reading is right on top of its median. For France it's a 5.8 percentile standing, marking the reading as weaker less than 6% of the time. For the UK, the May standing is a 26.5 percentile standing, just above the lower quartile of its historic queue of data.

Wrap up There was nothing reassuring in these data. The economies are struggling as we saw in the S&P PMI data from yesterday from the early reporters of PMI statistics. Of course, the inflation data are uniformly poor globally, so it remains a difficult time and the consumers are feeling a good deal of pressure from inflation and a certain amount of economic uncertainty.

You may recognize the excerpted headline quote as "borrowing" from US Admiral David Farragut. It is a famous quote from a US Civil war battle in which he charged ahead in his ship regardless of the risk. This month the global manufacturing PMIs themselves are charging ahead regardless of the rise of inflation, the war in Ukraine, the war in Iran, the closure or impedance in the strait of Hormuz, and the mucking up of oil and nonoil supply lines. Full speed ahead!

Trend… The chart shows an ongoing recovery in manufacturing. It also shows that conditions are only ‘better’ and not ‘strong.’ Yet when we rank these individual PMIs against their historic results back to January 2022, the median rank across these 18 reporters is 90.8-percent, signaling that they have been higher less than 10% of the time back to 2022. Of course, 2022-2023 represented low points for manufacturing after Covid. There was a strong recovery from Covid and then the sucker-punch from the invasion of Ukraine by Russia. Nonetheless on that timeline recovery is still in progress and – so far- not even the Middle East war and other geopolitical turmoil, including a real donnybrook within NATO, has sidetracked it despite the impact on oil prices. That may not last, but it is the current situation.

A test for central banks With inflation rising central banks are being put to the test. They failed the post Covid test and waited too long to hike rates. We did get recovery but inflation, too. Will they do that again? Or will they hike rates sooner? Will they try not to make the same mistake and make, instead, a new mistake by getting too tight too soon? Markets simply do not know. But in the US and UK there are five years of missing monetary inflation targets and in other key countries the inflation targets also have been broadly missed even if headline inflation recently had dipped into the target range in the last few months or so. Central banks are facing a challenge after their last challenge was not met with success and after a relatively long period – a solid legacy- of missing on the promises they made to the public on inflation.

Solid PMI trends: The sequential, as well as the current, monthly data show how widespread change has been tilted in a positive direction. While conditions are broadly better, the current month’s median reading is only at a PMI value 52.4. So, manufacturing conditions are only slightly above breakeven (a PMI of 50) but they have been weak for so long that this is an exceptionally strong reading compared to the last four and half years of results.

Some examples: The weak manufacturing readings on the month by ranking are for Turkey, Russia, India, and Indonesia. However, these are own-PMI comparisons and India is one of the strongest readings in April on a cross-section basis (Compared to other countries in April, rather than to its own history) having the third strongest manufacturing reading in April. Malaysia, South Korea. Taiwan, and Japan each have the strongest readings (or nearly so) since January of 2022; as a result, Taiwan and Japan also rank one and two among 19-reporter readings in April. South Korea ranks sixth, But Malaysia has been so weak it still ranks only 11th despite a 99.2% high-low standing.

In Sum: The bottom line is that recovery has not been derailed. Yet… But this is only an April report. And, given time, this rebound could be untracked. It is only a rebound from the lows. So, the expansion is still at risk even with global labor markets still tight based on unemployment readings. Economic growth is a slippery slope; the trend is only your friend until it turns on you.

CPI inflation in the UK eased sharply in April with the headline making no change at all and the core rising by only 0.1%. The headline is a marked departures from March when the UK CPI rose by 0.4% as the core put in another good month, rising 0.1%. Sequentially, UK inflation as measured by the CPIH has been relatively stable with a 3% growth rate over 12 months, a 3% annual rate over three-months, and a gain of 2.9% annualized over six-months; it's about as steady as you can get. The core (CPH excluding energy, food, alcohol, and tobacco) rises 2.9% over 12 months, eases to a 2.7% annual rate over six-months, then rises at a 2% annual rate over three-months.

Low inflation amid a global surge in oil prices The core is showing significant temperance and sequential improvement. Meanwhile, globally oil prices are flaring sharply, and most countries are seeing inflation rates rise. An energy cap in the UK is holding energy costs down and helping to keep the headline rate of inflation low. However, the cap can only work its magic for so long, eventually persisting strength in oil prices are going to show through into the headline index.

Acceleration tendencies abate In April, 50% of the categories of the CPI H showed acceleration compared to March; in March only 41% had accelerated compared to February; in February only 41% had accelerated compared to January. On a broad basis, inflation acceleration has been substantially neutralized or controlled. Sequential calculations show that over three-months acceleration has occurred in 50% of the categories, over six-months and 12-months, however, acceleration has occurred in only 33% of the categories, indicating that there has been a relatively long-lived environment of inflation temperance.

Still Too high However, inflation in the UK remains relatively high. The HICP measure, which is comparable to the measures used on the continent by the European Central Bank, has a 69th-percentile standing when ranked on data back to 2000. The CPIH has a 75.1-percentile standing and the CPIH-core has an 81.5 percentile standing. These are based on year-over-year percent changes and the two inflation gauges.

Inflation rankings tell us that inflation in the UK is still relatively high compared to how it has performed over the last 25 years. However, what's most important is inflation relative to the target of 2%. At 3% the inflation rate is too high and at 2.9% the core inflation rate is too-high as well. However, we see the shorter-term inflation rates particularly for the core have come down. The core rate over three-months has even reached the 2% mark, which is both encouraging and surprising. The UK economy has been performing poorly. The Bank of England will certainly be making its next monetary policy decision based on the performance of inflation with some assessment and how the trend is faring as well as with reference to economic performance which has been marginal. We will have to see how the BOE looks at the effect of the energy cap. At the same time there's a great deal of political turmoil in the UK to pair with difficult global geopolitical conditions

Japan’s GDP rose 2.1% annualized in 2026-Q1. The gain beat expectations for the quarter. The 2.1% rise was the largest gain since a 2.7% rise in 2024-Q3. However, it still leaves the year-on-year gain for GDP at 0.4%, the same as for 2025-Q4. And these are the weakest growth rates since Q1 and Q2 of 2024 when Japan’s GDP was declining.

Private consumption in 2026-Q1 rose by 1.1% quarterly at an annualized rate, its strongest gain in a year. Still, the year-on-year rise in private consumption slowed to 1% from 1.4% in 2025 Q4. Growth in private consumption on a year-on-year basis is the weakest it has been since 2024-Q4.

Despite some signs of GDP/Consumption stirring, the quarterly performance is not enough to boost the year-on-year growth rates to a position of strength, let alone firmness. Japan has simply been struggling for a while. And now with inflation bulging the BoJ has been super careful to move rates exceptionally slowly so that real interest rates in Japan remain exceptionally low (negative, still) and the prospect of rate normalization in Japan still seems to be a distant dream.

New PM Sanae Takaichi called her snap election and improved her grip on government and is still looking to stimulate the economy, but Japan’s fiscal position is now so precarious that even the usual incantation that Japan owns most of its debt to itself (its own residents) has not been reassuring. Japan has become wary of is debt-to-GDP ratio. The time for a fiscal surge has passed and there is talk instead of a new industrialization policy to try to stimulate the economy within the realm of current spending trends by offering improved incentives for growth.

Capital formation in GDP grew by 2.1% in 2026-Q1, a down shift for 2025-Q4, but capital spending is in a period of some volatility. The year-on-year gains show a step up in Q1 spending to a pace of 1.5% from 1.2% in the previous quarter. The five-year growth rate for capital spending is only 0.8% per year. Still there is not much here to build economic revival on.

Plant and equipment spending has weakened in Q1, showing an annualized Q/Q gain of 1.1% and that compares to five-year annualized growth of 1.8%. Year-on-year plant and equipment growth is at 2.8%.

Spending on housing turned sharply higher in Q4 with a smaller continued gain Q/Q in 2026-Q1. Still, after some considerable weakness quarterly, the year-on-year gain in housing spending in Japan in 2026-Q1 is -3.1% marking the third quarter in a row of declining spending on housing year-over-year.

Net exports in Japan turned sharply higher in 2026-Q1 and year-on-year the change in the GDP-net exports balance swung from negative to positive. The annual improvement in the net export position is still only half of what it had been over the last five years. Export growth spiked while import growth stepped up in 2025-Q1. Exports and imports over the past year both growth more slowly than their 5-year averages.

Domestic demand picked up a bit Q/Q in 2026, but the year-on-year growth slipped to 0.3% compared to a gain of 1.2% in the previous quarter.

Japanese officials are engaged in active market talk to try to restrain further slippage in the yen. Markets buzz with rumors of intervention that has not happened for over a month. Japan’s decision on interest rate is also caught up in its concerns about the yen. Meanwhile, as Japan imports all its fuel and rising energy prices are a concern in Japan. Yet the concern is about the future more than anything else since Japan tends to sign long-dated energy contracts and likely has locked up its oil price costs for this year. Still, the ongoing pressure has put conditions in doubt for the year ahead.

On balance Japan growth in 2026-Q1 was somewhat better than expected but it has done nothing to assuage concerns about the way forward. Ongoing inflation and a reticence to hike rates to address inflation continue to stalk the policy outlook as PM Takaichi looks for a way out of Japan’s weak growth trap.