Weekly Update - Eurozone: an autumn confirming the ECB's comfort (copy 1)

October and November data confirm an overall favorable economic momentum. November activity indices indicate acceleration in the main economies, while October banking statistics attest to a credit recovery, both for households and businesses. On the inflation front, it remains slightly above the 2% target in November. In this context, the ECB is expected to keep its key interest rate at 2% during the December meeting, reaffirming its comfort with the current orientation of its monetary policy. 

Economic activity remains well oriented. Q4-25 activity data show that activity in the eurozone should end the year on a positive note. Indeed, in line with the PMI releases, the economic sentiment indices published by the European Commission indicate that activity is still following a positive trend, with southern economies remaining particularly dynamic. Specifically, Spain and Italy would register a notable acceleration, while activity in France continues a gradual recovery. Conversely, activity in Germany is expected to remain sluggish at the end of the year. The German IFO survey shows that although industrial outlooks are improving, the deterioration in the services sector continues, reflecting an uneven recovery.
At the same time, credit data also confirm the gradual recovery of activity. Indeed, the ECB’s bank credit data for October show an acceleration in credit: loans to non-financial corporations increased by 2.2% year-on-year, with a significant contribution from long-term credit, while loans to households rose by 2.4%, notably supported by mortgage lending. In France, the recovery remains more moderate, with household loan growth limited to +0.7%, while loans to nonfinancial corporations remain steady at +1.8%.

Inflation: marked contrasts between countries. November data confirm overall controlled inflation in the eurozone but with divergences between countries. In France, inflation stabilized at 0.8% year-on-year, unchanged from October according to INSEE, explained by a slowdown in service prices. Conversely, despite a slight slowdown, inflation in Spain remains high at 3,1%, well above the ECB’s target and above consensus. Core inflation there reaches 2.6%, reflecting persistent pressures outside energy and food, in line with a more dynamic growth than in other economies of the monetary area. In Italy, inflation slows a little in November compared to October at 1.1%, below consensus. In Germany, inflation sharply accelerated to 2.6%, still driven by service inflation.

The ECB is expected to maintain its course in a controlled context. Supported by solid economic activity and inflation close to target on average, the ECB is expected to keep its key interest rate at 2% at the December meeting. The minutes of the October 30 meeting confirm this orientation: the decision to leave rates unchanged was made in a context of uncertainty, with the current level deemed sufficiently robust to absorb potential shocks. The ECB also reaffirms its prudence, ready to adjust its monetary policy depending on the evolution of economic indicators.

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