EU Economy: Weekly Commentary – October 27, 2025

European Market Review

European bond yields rose. Moody’s downgraded France’s outlook. European stocks advanced, the euro softened, and Brent crude jumped as new U.S. sanctions tightened Russian oil supply.

European bond yields advanced last week. Moody’s downgraded France’s credit outlook to negative from stable while reaffirming its Aa3 rating, leaving the agency as the only one still assigning France a double-A grade after Fitch and S&P had already cut it to single-A. European equity markets ended the week on a positive note, with Poland, Germany, Italy, and Spain each gaining over 1.6%. The euro weakened by 0.22% against the U.S. dollar. Brent crude oil surged 5.84% following new U.S. sanctions on Russia’s major oil producers, Rosneft and Lukoil. The sanctions, which freeze assets, ban U.S. transactions, and threaten penalties for foreign buyers of Russian oil, are expected to tighten global supply and have already led refiners in China and India to reduce imports.

Europe View Synopsis

Eurozone growth in October was service-led, strong in Germany, weak in France, with moderate inflation and uneven momentum.

In October, the Eurozone economy grew strongly, with the Composite PMI reaching 52.2, a 17-month high and the tenth consecutive month of expansion. Growth was led by services (PMI 52.6) and domestic demand, while manufacturing stabilized at 50 due to weak industrial output and staffing reductions. Germany drove the recovery, with its Composite PMI at 53.8, supported by strong services, rising new orders, and increasing backlogs, though some manufacturing job cuts continued. Inflation pressures in Germany intensified, reflecting strong demand. France lagged, with its Composite PMI at 46.8, weighed down by political uncertainty, weak demand, and low new orders, though employment rose slightly via temporary hires, and cost pressures eased. Overall, Eurozone growth remains solid and service-led, with moderate inflation supporting stable ECB rates, but the contrast between Germany and France highlights uneven momentum and ongoing risks.

Business Activity

Eurozone growth strengthened in October. Expansion was driven by services and domestic demand. Germany surged, France contracted. Employment was mixed. New orders rose sharply. Backlogs stabilised. Inflation remained moderate.

The Eurozone economy exceeded expectations in October, with the Composite PMI rising to 52.2, a 17-month high, marking the tenth consecutive month of expansion. The rebound was broad-based, led by a robust services sector, where the PMI rose to 52.6 and job creation accelerated to its fastest pace since June 2024. Manufacturing showed stabilisation rather than growth, with the PMI at 50, as weak industrial production, lingering staffing reductions, and potential supply-side risks, such as the Dutch government’s takeover of Nexperia, constrained output. Domestic demand remained the main driver, while new export orders declined slightly. Backlogs of work stabilised after a prolonged period of depletion, and output prices rose at the fastest pace in seven months despite easing input costs, reflecting moderate pricing power.

Germany continued to lead the Eurozone recovery, with its Composite PMI climbing to 53.8, the highest in 29 months. Growth was supported by strong service sector activity, renewed new orders, and rising backlogs, the first increase since mid-2022. Employment approached stabilisation as manufacturing job cuts slowed, though some reductions persisted. Inflationary pressures intensified, with both input costs and output prices rising at the fastest pace in eight months, highlighting robust demand and improved cost pass-through. Other Eurozone economies outside the two largest markets also contributed to the expansion, marking the strongest growth seen in over two years.

France remained the weak spot, with its Composite PMI falling to 46.8, an eight-month low, reflecting political uncertainty, weak domestic demand, and subdued new orders in both manufacturing and services. Employment rose marginally, primarily through temporary hires, while cost pressures eased to their lowest level in nearly five years.

We expect the Eurozone to maintain solid, service-led growth in the fourth quarter, though the divergence between Germany and France highlights uneven momentum and ongoing risks. Outside France, activity remains robust, with moderate inflationary pressures supporting expectations of stable ECB rates.