The updated economic scenario and forecasts of the Economic research
Inflation is no longer the No. 1 economic problem that it has been for the past three years, but it remains a major challenge. While it has not reached its 2% target yet, and the last pockets are slowly deflating, new inflationary pressures are mounting. At this stage, those pressures are limited but not negligible and new inflationary risks, linked to the economic and geopolitical context, are taking shape. The Fed's task is becoming more complicated by the risk of a US stagflation, and the ECB's one happens to be slightly trickier when balancing between downside and upside risks on growth.
The Main recent economic news.
Equity indices, Currencies & commodities, and Bond markets.
Inflation has probably eased in February, particularly in France due to the marked cut in the regulated electricity price. However, this overall movement masks divergent trends. Although disinflation is becoming more widespread (two-thirds of the components in Insee’s index show inflation below 2% y/y in January in France), prices continue to rise rapidly in services, in France as well as elsewhere in the Eurozone. In the short term, a return of energy price inflation is possible in the Eurozone, but this is likely to be short-lived. The ECB is likely to continue to cut rates at its 6 March meeting, but the persistence of core inflation (below but close to 3% y/y) could change the pace of cuts thereafter.
While the Fed lowered its target rate by 100 bps from 18 September 2024, bond yields rose by around 80 bps (as at 7/2/2025). This rare divergence is reminiscent of an inverse version of the ‘Greenspan conundrum’ (2004–2005): during this episode, which spread to Europe, the rise in short-term rates had little effect on long-term rates. What are the reasons for these contrary movements between short- and long-term rates, and what might the implications be?
GDP figures for Q4 2024 confirm a clear divergence between growth which is sustained in the US (0.6% q/q) or accelerating in China (1.6% q/q), and mixed performances in Europe with a stagnating GDP: -0.2% in Germany, -0.1% in France or stagnation in Italy, compared to +0.8% in Spain. In Japan and the UK, these figures have not yet been published, but our estimates are 0.2% and 0.3% q/q, respectively.
Economic surveys - for households and companies - started the year on a slightly more positive note. Consumer confidence (+0.3 points) benefited from a slight fall in indicators for unemployment and inflation prospects. The composite PMI index returned to expansion territory (+0.6 points to 50.2), with the contraction in the manufacturing industry easing slightly (+1.5 points to 46.6), while the services index fell dipped (-0.2 points to 51.4).
The German business climate is being driven down by the prolonged recession in industry. Industrial production (in the broad sense, including construction) has contracted in 10 of the last 12 quarters (including a further negative quarter likely in Q4 2024), for a cumulative drop of 8.4% (-14.7% compared to the peak seen at the end of 2017). This momentum explains the low IFO index.
The French economy remains weak, although it is showing signs of stabilisation. The Insee business climate indicator remained stable at 95 in January, while the composite PMI rebounded slightly (47.6 in January compared to 47.5 in December).
As expected, Italian growth failed to outperform that of the Eurozone in 2024 (average annual growth of 0.5% versus 0.7% respectively). In addition, it remained at a standstill in Q4 (0.0% q/q) for the second consecutive quarter.
After growing four times faster than the Eurozone in 2024 (3.2% as an annual average versus 0.8% respectively), the Spanish economy is set to maintain its dynamism throughout 2025. On the back of growth of 0.8% q/q in the last three quarters of the year, real GDP is set to continue its momentum, with expected growth of 0.7% q/q in Q1 2025, marking the seventh consecutive quarter of growth above or equal to 0.7%.
The US economy ended 2024 with its real GDP growing +0.6% q/q in Q4, a solid figure, though slightly down on the previous quarter (-0.2 pp). Household consumption (+1.0% q/q, +0.1 pp) was once again the main growth driver. The government also contributed positively, in contrast to private fixed investment (-0.1% q/q), despite the growth in residential investment and intellectual property products.
Les dynamiques de consommation et de production industrielle restent défavorables. Les ventes au détail (hors carburant) ont reculé de 0,5 % m/m en décembre et de 1,1 % au T4 par rapport au T3. La production industrielle qui a enregistré, entre septembre et novembre, trois mois de baisse successifs demeure sur une dynamique très difficile au démarrage de l’année 2025. Certes, le PMI manufacturier s’améliore (+1,3 point à 48,3) tout comme l’enquête mensuelle du CBI, mais l’enquête trimestrielle du patronat britannique chute à nouveau lourdement au T1
According to the Jibun Bank PMI survey, the Japanese economy has started 2025 in different directions. The manufacturing PMI fell to 48.7 in January (-0.9 pp, the lowest since March 2024), against a backdrop of a wider deterioration in production and new orders. By contrast, the services PMI accelerated according to the flash estimate, with Business Activity rising from 50.9 to 52.7.
