29 Sept 2025
Recent PMI data reveals diverse economic conditions across Europe, with Germany's services sector bolstering the Eurozone despite France's significant political and economic fragility. Concurrently, Britain faces a sharp decline in export demand due to tariffs, while China achieves a record trade surplus by successfully diversifying its export markets.
Germany's private sector activity experienced its fastest growth in 16 months in September, primarily driven by a significant improvement in the services sector which compensated for a decline in traditional manufacturing. New manufacturing orders decreased, indicating potential future production reductions if demand continues to fall, although reduced tariff uncertainty from a US-EU trade agreement improved the business outlook, especially in services. Business expectations for the coming year remain cautious, and substantial changes are unlikely until investment projects are implemented.
France's economic activity reached its weakest level in five months in September, with both services and manufacturing indices declining. This downturn is attributed to political crises, including two government collapses in less than a year, and ongoing negotiations for the new prime minister with budget opponents pushing for tax increases on corporations and the wealthy. An uncertain outlook for investment and household consumption, along with unfavorable export conditions, contributed to the decline, while the Bank of France anticipates growth to decrease over the next two years.
The Eurozone's private sector grew at its fastest rate in 16 months in September, largely due to Germany's strong services sector compensating for France's decline, highlighting varied conditions within the bloc. Manufacturing remains a weak point across the Eurozone, with the index falling below 50 again after a brief recovery. Although the Eurozone is on a growth trajectory, it is far from significant acceleration, and the composite index's increase might mask underlying weaknesses, especially in manufacturing. Despite supportive factors like a resilient labor market and government spending, and stable inflation at 2% for three months, some officials warn of an uncertain outlook, and pressure on selling prices could force the ECB to consider another rate cut by year-end, despite limited room for further reductions.
The OECD report suggests the UK could achieve the fastest economic growth among G7 countries this year, second only to the US, despite grappling with inflation issues. It forecasts the UK's economic growth to increase by 0.1% to 1.4% by year-end, exceeding previous predictions. However, tighter fiscal policies and US trade tariffs are expected to exert significant pressure on the economy next year, leading to a projected growth slowdown. The UK Chancellor viewed this report positively, hinting at measures in the upcoming Autumn budget on November 26 to support economic growth, potentially including tax increases.
Demand for UK exports has sharply declined since April when tariffs were announced, as reported by the latest PMI data. Growth in the UK's private sector decreased in September, with both services and traditional manufacturing weakening, and factory output declining sharply. The overall index for new orders from abroad fell to its lowest level in five months, with companies reporting reduced sales to key export destinations like the US and Europe. Businesses are pessimistic about the future, anticipating severe tax increases in the November 26 budget while simultaneously struggling with rising wage costs and existing taxes. Employment has decreased for the twelfth consecutive month, as employers manage high costs and reduced workloads.
Despite five months of heavy US tariffs, China's exports continue to break records, pushing the country towards a $1.2 trillion trade surplus by successfully diversifying its markets. Alternative markets like India, Africa, Southeast Asia, Europe, and Australia have shown record purchases, reducing China's reliance on the US. However, some countries like Mexico have increased tariffs on Chinese goods, and others like India and Indonesia are reviewing import restrictions. Chinese companies reduced prices to clear excess capacity, which lowered profits and intensified domestic inflationary pressure, while exports remain the primary driver of China's economic growth amidst weak domestic demand. Competitive pricing, particularly in electric vehicle exports to Europe, and a depreciating yuan against the dollar and euro, have further enhanced China's export competitiveness.
Later today, the US will release PMI data for both manufacturing and services, along with existing home sales figures. Federal Reserve Chairman Jerome Powell is also scheduled to deliver a speech on the economic outlook at the Chamber of Commerce.
China, despite five months of heavy US tariffs, continues to break export records and is nearing a trade surplus of $1.2 trillion by finding alternative markets.
| Country/Region | Key Economic Trend |
|---|---|
| Germany | Fastest private sector growth in 16 months, driven by strong services offsetting manufacturing weakness. Trade agreements reduce uncertainty. |
| France | Weakest economic activity in five months due to political instability, uncertain investment, and unfavorable export conditions. Credit rating downgrades observed. |
| Eurozone | Overall growth supported by German services, masking manufacturing weaknesses. Inflation stable but future outlook uncertain, potential for further ECB rate cuts debated. |
| United Kingdom | OECD projects fastest G7 growth this year after US, but export demand sharply declined due to tariffs. Private sector activity and employment are weakening. |
| China | Record exports and trade surplus despite US tariffs, achieved through successful market diversification and competitive pricing. Domestic demand remains weak. |
