Business climate, households confidence, labour market, inflation in Q4 2025: our quarterly Pulse of the economic conjoncture
In the major advanced economies, public deficits remain high, particularly in the United States, the United Kingdom and France. Interest expenditures are expected to rise in countries where they are currently low – Germany, Japan and France – and stabilise at a high level in countries where they are currently higher – Spain and Italy – without, however, increasing. By 2030, according to our forecasts, the dynamics of the public debt-to-GDP ratio would reflect differences in public deficit scenarios.
The US primary deficit is expected to narrow in 2025 and stabilise at around 1.0–1.5% of GDP in the coming years thanks to higher customs revenues.
Germany's primary deficit is expected to widen over the next two years as a result of the new fiscal strategy, before gradually narrowing between now and 2030.
Despite consolidation, which is set to continue from 2026 until the end of the decade, the primary deficit will remain worse than the stabilising balance. Public debt will therefore increase.
Until 2027, nominal growth (3.2% on average) is expected to remain higher than the apparent interest rate (3.1%) due to an acceleration in real growth (0.9%).
Spain is expected to generate primary surpluses from 2026 onwards.
The primary budget balance has gradually recovered post-COVID, mainly supported by improved growth, but remains high compared to the rest of Europe.
Japan's primary deficit is expected to narrow in 2025 but is likely to increase again to around 2% of GDP in the coming years due to upward pressure on public spending.
In September, inflation rebounded slightly in the United States, the Eurozone and Japan, while remaining stable in the United Kingdom. In the United States, the inflationary impact of tariffs has so far been contained (see chart of the month). In the other countries, there are positive signs, as inflation expectations are stable at around 2% in the Eurozone, wage growth is moderating in the UK and producer prices are falling in Japan.
In May, the United States stood out for an increase, albeit very slight, in its inflation (from a higher level), while it slowed sharply in the eurozone and fell slightly in the United Kingdom and Japan. Among the unfavourable developments to watch out for, energy commodity prices (oil and gas) have started to rise again since April, as has the break-even inflation rate, which could support inflation over the coming months. Conversely, two positive dynamics are emerging: wage growth is moderating, and price pressures on the supply side are easing, with the notable exception of the United States.
A slight rise in inflation was seen on both sides of the Atlantic this autumn. However, the resilience of services prices and the geopolitical risks anticipated for 2025 do not, at this stage, threaten a landing scenario for inflation. In our view, this should be achieved more quickly in the eurozone than in the United States and the United Kingdom.
The past week (16-22 September) was packed with monetary policy meetings and inflation reports. While the US Federal Reserve’s first key rate cut of 50 basis points was larger than we had expected, the status quo by the BoE and BoJ was in line with our expectations. With inflation running below 3%, real interest rates on both sides of the Atlantic remain broadly in restrictive territory. Expected moderation in inflation in services should prompt central banks in Europe and the US to continue monetary easing in the coming quarters. Wage growth in the private sector picked up slightly in the US, while slowing in Europe. The downward trend is expected to continue, with a less dynamic labour market
In the United States, consumer price inflation is slowing, in line with the cooling of the labour market. After three months of more restrained growth, the CPI index fell in June, month-on-month, for the first time in two years. The core index rose very moderately (+0.1% m/m, the smallest increase since May 2020). Other important signs of disinflation: alternative measures continue to fall, and in particular the trimmed mean PCE index published by the Federal Reserve in Dallas, which is now well anchored below 3%. The rebound in producer prices, which is still limited at this stage, is nonetheless worth watching and could limit the fall in consumer price inflation. Year-on-year, producer prices rose back above 2% in the second quarter (2.7% y/y in June).
In the four zones covered (United States, Eurozone, United Kingdom, Japan), wage growth continues to outstrip inflation, supporting household purchasing power gains, but contributing, apart from Japan, to keeping inflation in services at high levels. Price pressure indices and producer prices are recovering moderately.
Some common inflation trajectories emerge between the different economic blocs: disinflation of food and manufactured goods continues, while energy deflation has largely abated, except in the United Kingdom. Apart from Japan, price pressure indicators (supply side) have rebounded in recent months (page 19) while wage growth is currently higher than inflation in all the regions (page 27).In the United States, CPI inflation fell slightly, from 3.5% in year-on-year terms in March to 3.4% in April, while the core rate fell from 3.8% to 3.6%. Deflation in used vehicles (from -2.2% in March to -6.9%) contributed mainly to this decline. On the other hand, services inflation remained stable at 5.3%
Despite the rebound in the United States, inflation continues overall to slow in the G7 countries and in the euro area as a whole. In Japan, keeping consumer prices above 2% will remain complicated in the short term, due to the loss of momentum observed this winter: inflation rebounded in February due to base effects, but the 3m/3M annualised rate fell back to 1.3%. The decline in the 3m/3m annualised rate is more marked in services, down to only 0.4%. The wage increase granted following the annual wage negotiations (Shunto): 5.3% in total, including 3.7% in base salary, will nevertheless support the BoJ in its (very gradual) attempt to normalise monetary policy
Consumer price disinflation stalled at the beginning of the year in Europe and the United States. With the tailwinds of energy price deflation fading, core inflation, which is still high, now accounts for almost all of the price increases in the United States. This is less true in the euro area and the United Kingdom, where food inflation still contributed almost a third to headline inflation in January. The decline in inflation in 2023 has led, in all areas, to a downward shift in household inflation expectations in the short-term (1 year) towards long-term expectations (5 years). Wage growth continues to outpace inflation and fuel a recovery in purchasing power, which appears to be stronger in the United States and the euro area than in the United Kingdom.
Headline inflation has stabilised in recent months in the United States, the euro area and the United Kingdom, while it has declined in Japan. Core inflation continues to fall and its decrease is broad-based. Aggregate indicators of price pressures, calculated using PMI surveys, deteriorated again amid longer delivery times linked to the ongoing disruptions to global maritime trade. The PMI input price indices are also up in the US and the UK (page 18).
Inflation regained ground in the United States and the euro area in December, rising from 3.1% to 3.4% and from 2.4% to 2.9% year-on-year respectively. However, the breakeven inflation rates (10-year bonds) for the four major eurozone economies have fallen below those of the United States. The breakeven rate has also dropped in the United Kingdom, where the inflationary environment has improved, although it remains more deteriorated than in the other areas.
The latest inflation data from the major developed economies have helped fuel the decline in bond yields and reinforced the conviction that the first policy rate cuts will take place in the first half of 2024 in the US, the euro area and the UK.
In the United States, core inflation dropped again in August, as did the pace of wage growth. In the eurozone, headline inflation has fallen slightly below core inflation since July. The situation in the United Kingdom remains the most worrying, but the latest developments have been relatively positive. In Japan, the new inflationary context is leading to a recalibration in market expectations.
In his opening remarks at Jackson Hole on 25 August 2023, Jerome Powell provided a fairly detailed analysis of US inflation, focusing in particular on the three main components of core PCE* inflation to be monitored in order to track the disinflation process. The chart illustrating his comments is reproduced here. Two encouraging trends emerge – the sharp fall in core goods inflation and the beginning of the decline in housing services inflation – but also, and above all, a third concerning trend: the absence of a fall in non-housing services inflation
Shelter is the main item in the Consumer Price Index (CPI) in the United States, accounting for 34.4% of the total basket. Its growth has accelerated sharply since 2021 and the post-pandemic economic recovery: the y/y rate strengthened from 1.5% in February 2021 to a peak of 8.2% in March 2023 and has decreased very slightly since, down to 8.0% in May. The large contribution of the shelter component keeps US inflation high. Excluding this component, the core inflation reading for May dropped from 5.3% to 3.4%. Moreover, the current gap between the standard core measure – i.e. excluding energy and food – and the core measure that also excludes shelter has been the widest since the early 1980s
The pace of inflation in the United Kingdom remains a cause for concern, while in Japan, market expectations are being cautiously adjusted to the new inflationary environment. Core inflation in the United States remained high in April, but some alternative indicators improved somewhat. In the eurozone, several services sectors are recording a faster rate of inflation, in some cases due to wage increases.
Chart books on economic developments in major economies
