Modernity sometimes conceals, under new guises, a return to old precepts: a currency backed 100% by the safest assets, bank deposits guaranteed by tangible reserves, the search for unfailing financial stability. Stablecoins (digital tokens backed by highly safe and liquid assets) are part of this logic. However, in our modern economies, banks only keep a small fraction of deposits in reserve with the Central Bank: this is the principle of "fractional reserves" which gives them the ability to create money (the remaining deposits can be allocated to credit). Beyond the intellectual interest that they attract, stablecoins raise a broader question: if their use were to become widespread, would they not risk making it more difficult to finance the economy?
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Our nowcasts for Q3 2025 highlight resilient GDP growth in the Eurozone and France. In Italy and Germany, two economies that suffered a setback in Q2 after a very good Q1, we expect growth to strengthen in Q3 and more markedly in Q4. The UK, meanwhile, is expected to see growth slow in Q3 (after a very strong H1 2025), before rebounding in Q4. In the US, the Atlanta Fed's GDP Now suggests another upside surprise for Q3 growth (1% q/q), before a backlash and a sharp slowdown in Q4. In Japan and China, the slowdown would occur as early as Q3, after a good H1.
The recovery in PMI indices continues despite a decline in industry. In September 2025, the composite PMI reached its highest level since May 2024 (51.2), an improvement attributable to services (51.4). However, the manufacturing index, which had been recovering sharply since the beginning of the year, declined in September (-1.2 points to 49.5). Industrial production rose by 0.3% m/m in July. The economic sentiment index stabilised in Q3.
Rates on new investment loans (irf>5 years) to non-financial corporations in the Eurozone fell very slightly in July 2025 for the second consecutive month. At 3.58%, however, they remained close to their June 2025 level. Rates on new treasury loans (floating rate and irf<3 months) to NFCs fell slightly more sharply to 3.31%. Conversely, rates on new loans to households for house purchase and consumption rose just as modestly (by +1 bp and +6 bp m/m, respectively). They stood at 3.30% and 7.41%, respectively.
The decline in the IFO index in September does not impede the upward trend that began in early 2025. The relative weakness in September particularly affected services and retail trade. However, there has been a clear improvement since the beginning of the year in German industry, construction and wholesale trade. This momentum has not yet spread to the rest of the economy, whilst awaiting the effective implementation of investment plans, with a ramp-up expected in Q4.
In France, the improvement in certain sectors is not spreading to others. The composite business climate has been stable for five months, at 96. Several sectors benefited from an improvement in Q2, including aeronautics, information and communication, and construction (to a lesser extent). These sectors continue to outperform in Q3, but without this spreading to other sectors; they should therefore continue to support growth in Q3. However, growth is vulnerable to a slowdown in these sectors in the absence of other drivers.
In September, the economic sentiment index remained below its long-term average, held back by industry with a production index still in negative territory (-17.4) and production forecasts declining (-0.9). This contrasts with the rise in Italian's industrial production. In services, sentiment is improving (+2.5; +0.2 pts) but activity is struggling to take off. However, expectations for demand in the coming months are rising (6.3, the highest since April 2024; +4.6 pts).
In Spain, business confidence strengthened in September and remains well above its long-term average. In industry, the index remains in contraction territory but is improving (-4.7; +1.1 pts m/m). Production expectations for the coming months have risen significantly since spring (3.2 vs. -0.4 on average in Q2), although they are down compared with last month (-1.1 pts).
The composite PMI has been in expansionary territory for five months. However, it fell to 50.1 in September (-3.4 pts m/m), dragged down by the services PMI (50.8; -3.4 pts m/m), which had reached an 18-month high in August. The manufacturing PMI was weakened in September by the ‘production’ and ‘new export orders’ sub-components. The July decline in industrial production suggests a backlash after a surge in growth linked to expectations of US tariff increases.
The non-manufacturing ISM fell markedly in September to 50.0. This result was due to a decline in business activity and new orders components. Manufacturing ISM improved to 49.1 in September, driven by output growth (51.0). However, new orders contracted (48.9), particularly those for export (43.0). The rise in prices paid slowed for the third consecutive month (61.9).
The Tankan survey reported an improvement in large Japonese manufacturing companies' sentiment (14) in Q3, including in the motor vehicles sector (10). The overall figure (all enterprises and all industries) remained stable (10). The Services PMI remained stable at a high level (53) in September, while the Manufacturing PMI (48.4) fell to a five-month low due to the first contraction in hiring (49.4) since November 2024 and a decline in output (47.3, -2.5 pp).
In the Chinese manufacturing sector, the official PMI has remained in contraction territory since April, but it improved to 49.8 in September. The PMI published by RatingDog (formerly Caixin) also improved (to 51.2 from 50.5 in August and 49.5 in July). This slight recovery is notably due to the “new export orders” sub-component, which reached 47.8 in the official index – a level that, while still in contraction territory, is at its highest since March. The export sector continues to withstand the rise in US tariffs.
Since the beginning of the year, the resumption of the trade war between the United States and China has led the latter to redirect its exports in record time. On average over April to July, while Chinese exports to the US contracted by 23% year-on-year (yoy) in value terms, those to Africa increased by 34%, far more than those to ASEAN countries (17%) and Europe (7%).
After the major upheaval of ‘Liberation Day’, the dust has settled somewhat. The level and scope of the new US tariffs are now largely known, and advanced economies are continuing to show resilience. Despite significant fluctuations in trade in the first half of the year, global trade has been braodly unaffected so far. The combination of headwinds (US tariffs, uncertainty) and tailwinds (low oil prices, Fed rate cuts, European measures) explains the gradual nature of the slowdown (in the US) and the recovery (in the Eurozone). The Eurozone is doing relatively well: with growth expected to strengthen and inflation under control, it is escaping the stagflationary scenario seen in the US, the UK and Japan.
US tariffs rose sharply in two stages: first in April, then following the signing of multiple trade agreements this summer. The impact of the first stage of this tariff increase is well known: trade flows to the United States were severely disrupted. However, global trade remains dynamic, particularly in Asia (a structural phenomenon) and Europe (which should benefit from internal momentum with the rebound of the German economy). The restructuring of trade flows (already underway with the rise of China) could accelerate as different countries seek elsewhere the opportunities lost in the United States.
Growth in the United States has slowed significantly compared with 2024 and is expected to remain moderate in the coming months, while maintaining some dynamism. Inflation is gradually rising again, mainly due to higher tariffs, while the labour market is already showing clear signs of weakening. These developments are resulting in a rebalancing of risks around the Federal Reserve's (Fed) dual mandate: downside risks to employment are increasing relative to upside risks to inflation. In our view, this should prompt the Fed to make two further cuts to its policy rate between now and the end of 2025, following the September cut. At the same time, fiscal policy is unlikely to stem the rise in the public debt ratio.
Growth in the Eurozone has so far proved fairly resilient to shocks (accompanied in particular by an acceleration in new lending against a backdrop of falling interest rates) and should gradually accelerate. Exports will continue to be weakened by Chinese competition and US protectionism. However, the foreseeable rebound in German growth will benefit economic activity in the Eurozone as a whole. Moreover, the buoyant labour market is supporting household purchasing power, without generating inflationary pressures, giving the ECB visibility and room for manoeuvre if necessary.
The resumption of German growth has been hampered by US tariffs. However, the outlook continues to brighten thanks to the government's strategy, which is structured around a vast programme of public investment and incentives for business investment. Beyond the anticipated economic rebound, the structural recovery of growth will depend on the country's ability to control its value chains and reposition itself in global trade amid increased competition. Inflation is expected to continue to decline. Despite unfavourable developments in industry, unemployment remains contained, and labour market tensions could quickly resurface. Public debt is expected to grow as a result of the widening budget deficit and rising interest rates (the effects of which will be felt by other Eurozone members).
