Eurozone: Disinflation Marks a Milestone, Growth Continues to Be Challenged by Political Uncertainties
As the end of 2025 approaches, the clear slowdown in the rate of inflation in the Eurozone seems to provide the relief investors have been awaiting. However, while prices are nearing the 2% target, growth remains fragile, undermined by political turmoil and persistent international tensions.
Disinflation confirmed as the ECB opts for stability
The acceleration of disinflation is becoming more evident in the eurozone: the October 2025 estimate places annual inflation at 2.1%, down from 2.2% in September, just shy of the European Central Bank's target. This development is primarily due to the continued easing of energy prices, a decline in raw materials, and a generally moderate economic environment.
Christine Lagarde, President of the ECB, has expressed caution, opting to keep interest rates unchanged and preparing the markets for a prolonged status quo, with the deposit rate remaining stable at 2%.
While some analysts highlight the influence of external factors in this trend, the ECB is opting to bide its time, thereby maintaining a level of visibility considered reassuring for market participants and leaving the door open for adjustments if economic recovery weakens. Christophe Boucher from ABN Amro Investment Solutions believes that « inflationary pressures remain on the downside, » but that the ECB will only consider changes if there is a significant deviation from the target.
Modest Recovery, Ongoing Disparity
The macroeconomic data for the third quarter shows a slight rebound with GDP growth of 0.2%, slightly exceeding expectations. This improvement is accompanied by better economic confidence indices and improved consumer spending, with real consumption per capita increasing by 0.3%. The services sector stands out with renewed activity, while the industry suffers from international uncertainties and an ongoing trade war. The job market remains stable, with an unemployment rate steady at 6.3%. However, this growth exhibits significant disparities: the southern part of the euro zone enjoys more pronounced dynamism, while the north struggles to regain real momentum. The composite PMI index reached 52.5 in October, its highest level in 29 months, indicating a business climate on the path to normalization. Nevertheless, the European trade surplus continues to erode, and the stagnation in the manufacturing sector still weighs on overall dynamics.
Political Uncertainty: The Key Factor Limiting Clarity
While disinflation provides a calmer monetary environment, growth is still hindered by political uncertainties within the eurozone and beyond. Geopolitical tensions continue in the background, as does the volatility associated with US trade policy and the risks of tariff increases. The ECB, though more optimistic for 2026 and 2027—possibly anticipating growth of 1.3% and 1.8% in its next revision—reminds us that the balance remains fragile between stimulus and austerity. The differing pace between European monetary policy and that of the Fed also raises questions about the euro's medium-term competitiveness, making growth projections challenging despite reassuring economic signals. Economic stakeholders thus exhibit marked caution, aware that the political dynamics remain subject to internal and external uncertainties, while volatility in long-term interest rates sustains uncertainty over bond portfolios and future allocation decisions.
This content has been automatically translated using artificial intelligence. While we strive for accuracy, some nuances may differ from the original French version.
