Main findings from the ECB’s recent contacts with
non‑financial companies

Prepared by Gabe de Bondt, Richard Morris and Moreno Roma

This box summarises the findings of recent contacts between ECB staff and representatives of 79 leading non-financial companies operating in the euro area. The exchanges took place between 17 and 26 March 2025, before the US tariff announcements on 26 March and 2 April.^[1]

Contacts pointed to gradually improving business momentum, mainly reflecting an incipient recovery in the industrial sector (Chart A and Chart B). The feedback from contacts was consistent with small improvements in economic growth in both the first and second quarters. This reflected a relatively broad-based perception that manufacturing and construction output had reached – or passed – their troughs and that orders were either picking up or expected to do so over the course of 2025. Growth in services was holding fairly steady.

Chart A

Summary of views on activity, employment, prices and costs

(averages of ECB staff scores)

Reports on consumer spending continued to vary. Most contacts in the consumer goods industry reported good or recovering demand, which some attributed to the strong labour market and recovering purchasing power. Reports of improving demand for kitchen appliances and consumer electronics were particularly notable. Contacts in those industries said this partly reflected the replacement of devices bought during the pandemic. Most retailers, by contrast, reported relatively subdued activity. They ascribed this to the continuing effects of the past surge in inflation, perceived inflation being higher than actual inflation, and to uncertainty dampening consumer confidence. Moreover, while a few said that the shift in demand in recent years towards lower-priced items had partly unwound, many saw it as largely permanent. Contacts in the travel and tourism industry were broadly split between those seeing – and anticipating – still strong growth in demand and those for whom bookings were growing by less than expected.

Chart B

Views on developments in and the outlook for activity

(averages of ECB staff scores)

Despite high uncertainty, there were signs of recovering demand for machinery and equipment, and of construction activity turning the corner. Most contacts in – or supplying – the machinery industry saw activity bottoming out, with early signs of orders recovering. Improving confidence was partly linked to recent announcements of increased (funding for) government spending on defence and infrastructure, which in the first instance would prompt (potential) suppliers to invest in adapting and expanding capacity. A majority of contacts in – or supplying – the construction sector also reported activity improving as declining interest rates began to have their effect. The continued focus of many firms on productivity and cost-cutting was driving demand for artificial intelligence and cloud computing, an important factor for growth in business services. However, several business service providers (including employment, IT and consultancy services) cited customers pausing large projects in view of the current uncertainty relating, for example, to tariffs. Demand for passenger vehicles was broadly flatlining and was expected to remain low or grow only modestly in the short term. By contrast, the heavy vehicle industry appeared to be preparing to expand production later this year, and producers of (and suppliers of equipment for) other transport equipment reported ongoing strong output growth to meet long order backlogs.

The employment outlook was improving slightly but remained relatively flat, as firms continued to focus on efficiency and productivity. Many firms maintained a conservative approach to workforce management, with a strong emphasis on cost control. Natural attrition, hiring freezes and early retirement rather than layoffs were the main tools for reducing headcount, even in the energy-intensive manufacturing industries and the automotive sector, which were adjusting to structurally lower activity levels. There were, however, increasing employment opportunities in the construction and defence sectors, and employment was growing, albeit modestly, in most services sectors. Hiring remained a challenge for many, but less so than in much of the recent past. Attrition rates remained low, and some reported an increased focus on monitoring costs related to absenteeism. Placement agencies continued to report falling temporary and permanent job placements, which now constituted an exceptionally long downturn by historical standards.

Chart C

Views on developments in and the outlook for prices

(averages of ECB staff scores)

Contacts reported moderate price growth with no change in overall momentum or the short-term outlook (Chart A and Chart C). While price growth in the services sector still outpaced that in industry, contacts pointed to some convergence, with price rises picking up in manufacturing and waning slightly in services. Contacts in the capital and consumer goods sectors generally reported a “normal” pricing environment of modest increases and stable margins, while prices for many intermediate goods were bottoming out or starting to rise from recent troughs. Price growth across much of the services sector remained relatively robust. However, some contacts in travel and tourism pointed to more moderate price rises as demand growth weakened, as did contacts in some business services where customers were cost cutting or pausing investment. Price growth remained subdued across most of the retail sector in a context of strong competition for market share and price-conscious consumers.

Contacts were increasingly confident that wage growth was moderating (Chart D). A simple average of the quantitative indications provided would imply wage growth slowing, from 4.3% in 2024 to 3.0% in 2025 and 2.5% in 2026. The indication for 2025 was around half a percentage point lower than in earlier survey rounds. With few exceptions, contacts saw the wage outlook as now “normal”, with increases likely to be in line with inflation and productivity gains.

Chart D

Quantitative assessment of wage growth

(percentages)

In this round contacts were asked whether announcements on tariffs and defence spending had led them to reassess the outlook for activity and/or prices. While most said that announcements (up to mid/end-March) had not led to any reassessment, slightly more contacts had reassessed positively than negatively, which was driven by the announcements on defence spending. Most contacts were still taking a “wait and see” approach to tariffs or remained sceptical about their introduction or duration, viewing them as a risk rather than part of the baseline. Scepticism on tariffs reflected the view that they would have negative effects for consumers in the United States and be unlikely to encourage greater investment there, as businesses would be reluctant to take long-term decisions in response to potentially transitory policy shifts. The main impact of the tariff announcements so far had been to prompt firms to pause some investments and reassess their dependence on inputs from the United States. Contacts who had reassessed their outlook in view of actual or anticipated tariffs expected lower activity and, on balance, higher prices (Chart E). The latter reflected an increasing expectation that levies imposed by the United States would result in countermeasures, including safeguards to mitigate trade diversion.

Plans for increased defence spending, including in the field of digital and cybersecurity, could start to support activity relatively quickly. The announced increases in (financing for) defence spending – to which many added infrastructure spending in Germany – were considered sufficiently large and certain to lift expectations of future demand for many goods and services (even if typically only affecting a small part of the customer base). Many firms had plans to increase or adapt capacity that could be acted upon if it became clear that enough new spending would be directed to European firms, and this would be preceded by increasing demand for intermediate inputs. A few contacts did, however, express concerns about government spending being redirected away from other capital projects and/or rising debt and inflationary pressures translating into higher interest rates. Some expected increased defence spending to put upward pressure on prices via higher demand for inputs of materials, components and skilled labour.

Chart E

Impact of tariff and defence announcements on firms’ outlook for activity and prices

(percentages)