EU Economy: Weekly Commentary – November 24, 2025

European Market Review

European bond yields declined, with the exception of France. Rising defence spending is expected to increase the Eurozone’s deficit and debt. Equities fell, the euro weakened, and Brent crude edged lower on optimism over a Russia–Ukraine peace framework.

Last week, European bond yields generally declined, with the exception of France, where prices experienced a modest decrease. The European Commission has indicated that increased defence spending is expected to raise the Eurozone’s deficit from 3.1% of GDP in 2024 to 3.4% in 2027 and debt from 88.1% to 90.4%, with Germany projected to see a substantial increase in its deficit, while France is anticipated to reduce its own. The EU permits temporary additional annual defence expenditures of up to 1.5% of GDP without triggering sanctions. European equity markets closed the week lower, led by Germany (-3.29%) and Spain (-3.21%), while the euro depreciated 0.93% against the US dollar. Brent crude declined 3.73%, supported by optimism regarding a potential Russia–Ukraine peace framework, which could facilitate increased supply.

Europe View Synopsis

Eurozone business activity expanded in November, driven by services, while manufacturing softened. Germany and French industry underperformed. Rising costs and inventory declines persisted, sentiment strengthened, supporting modest Q4 growth; ECB rates likely unchanged.

Eurozone business activity expanded solidly in November, with the composite PMI at 52.4, slightly down from October but still above the neutral 50 threshold, indicating resilient short-term growth despite global headwinds. Services drove the expansion, reaching an 18-month high at 53.1 on robust demand, while manufacturing softened, with the output PMI at 50.5 and weak new orders, particularly in exports. Germany’s growth slowed, weighed down by manufacturing pressures, while French services rebounded to a 15-month high even as manufacturing fell to a nine-month low, signalling subdued industrial momentum. Rising input costs, declining inventories, and supply-chain delays persisted. Overall sentiment improved, supporting modest Q4 growth, with the ECB likely to keep rates unchanged.

Business Activity

Eurozone business activity expanded in November, driven by services, while manufacturing weakened. Germany underperformed, input costs rose, inventories declined, sentiment improved, supporting modest Q4 growth and a likely stable ECB policy.

Eurozone business activity sustained a solid pace of expansion in November, despite some signs of moderation. The composite PMI edged slightly lower to 52.4 from 52.5 in October, remaining comfortably above the neutral 50 threshold and signalling continued short-term resilience despite global headwinds. Growth was underpinned by robust services activity, which reached an 18-month high at 53.1, reflecting strong demand, particularly in business and consumer-facing services. Manufacturing, by contrast, softened, with the output PMI declining to 50.5 and the headline manufacturing index to 49.7, both at multi-month lows, as new orders growth slowed and export demand remained weak. Within the Eurozone, Germany’s growth decelerated, with the composite PMI falling to 52.1 from 53.9, weighed down by manufacturing pressures from U.S. tariffs and rising competition from China. In France, services activity strengthened, with the services PMI hitting its highest level in 15 months on stronger demand expectations, while the manufacturing sector weakened, with the PMI at a nine-month low amid softer order books and declining prospects in transport equipment, suggesting subdued industrial momentum into Q4 and 2026.

Across the Eurozone, input costs rose at the fastest pace in eight months, driven by higher inflation in services and renewed manufacturing pressures, although companies passed on only modest price increases, resulting in the softest output price inflation in over a year. Inventories fell further and supply chains continued to face delays, reflecting weak demand and a slow-turning inventory cycle. Nevertheless, overall business sentiment strengthened over the year, keeping the Eurozone on track for solid Q4 growth. While manufacturing remains constrained by weak demand, the services sector continues to underpin expansion. Easing selling-price inflation suggests limited pressure for the ECB to tighten policy, making an unchanged interest rate in December the most likely outcome.

The Eurozone economy is stagnant, with inflation remaining moderate. Germany and France are holding back regional growth. We don’t expect interest rate cuts at December’s meeting.