Whilst my home country has been in the headlines there is quite a bit going on for the ECB in the Euro area. We can start with one perspective which is that with an interest-rate of 2% as opposed to the 4% in the UK that Chancellor Rachel Reeves will be envious as she would of the lower bond yields. Actually that is also true of the much lower inflation rate of 2.2% rather than 3.8%, But there have also been hints of a change for the better for the economy.
“Finally, there’s something positive to report about the eurozone economy again. The services sector saw a solid upswing in October. When it comes to new business, you’d have to go back to May of last year to find a similarly strong increase. In this environment, service providers also hired more staff than in the previous month, which sparks hope for sustained growth. ( HCOB PMI)
So we can start with a reflection on the words of ECB President Christine Lagarde at the latest press conference.
No. But we will do whatever is needed to make sure that we stay in a good place.
And I would observe that with growth of 0.2% for Q3, which is a tad more than what was expected by the consensus – and including Ireland a little more than what we had expected, not by much – I would not complain too much about growth at this point in time.
In a way it was rather depressing that quarterly growth of 0.2% was described as good. Perhaps a lot more revealing than she intended. Also there is the issue with France I mentioned on the 30th of October and also something that had even her fans scratching their heads.
According to surveys, the pick-up reflects the fact that many firms have stepped up efforts to modernise their IT infrastructures and integrate artificial intelligence into their operations.
Anyway if we return to the HCOB PMI there is this.
“A key driver of growth in the services sector this October was Germany. The jump in the index there — up more than three “points to 54.6 — is striking and more than offsets the decline in France, where political tensions are dampening people’s willingness to spend. Keeping up this relatively strong growth momentum in the services sector over the coming months won’t be easy. In France, political stability would help — passing the 2026 budget would be a step in that direction. In Germany, much will depend on whether the government’s stimulus package actually motivates businesses and households to invest and spend more.”
So we have an improvement in the Euro area economy and in a change on the last few years Germany is not only participating it is a driver of it.
German official data
We can switch to this and see that we are seeing some better news from another area.
WIESBADEN – According to preliminary figures from the Federal Statistical Office (Destatis), real (price-adjusted) output in the manufacturing sector rose by 1.3% in September 2025 compared to August 2025, after seasonal and calendar adjustments.
Care is needed as this is still an annual decline.
Compared to the same month of the previous year, September 2024, output in September 2025 was 1.0% lower, after calendar adjustment.
But yesterday also showed an improvement in orders.
WIESBADEN – According to preliminary figures from the Federal Statistical Office (Destatis), real (price-adjusted) new orders in the manufacturing sector rose by 1.1% in September 2025 compared to August 2025, after seasonal and calendar adjustment.
Although it has got itself into rather a pickle with the way its headline number is used this is consistent with the HCOB PMI. The emphasis is mine.
Germany’s manufacturing sector continued to tread water in October, with the headline PMI inching up to 49.6 from 49.5 in September, remaining just below the crucial 50.0 threshold that separates expansion from contraction. While output rose for the eighth consecutive month, this latest upturn was driven primarily by the investment goods segment, suggesting that the recovery remains fragile.
So things look to have stopped declining in German manufacturing as we wait to see if things can see actual growth. Just as a reminder my deindustrialisation theme is still in play as I note that the production index set at 100 in 2021 is now at 90.6. In fact that is a depression for this sector.
Let us move on with what appears to be a rally in the services sector of Germany leading to some growth for the economy overall after around 3 years of not much.
France
Here we have a clear problem as yet again the official report of 0.5% GDP growth in the third quarter collides with the PMI.
more than offsets the decline in France, where political tensions are dampening people’s willingness to spend. Keeping up this relatively strong growth momentum in the services sector over the coming months won’t be easy. In France, political stability would help — passing the 2026 budget would be a step in that direction………France is clearly putting the brakes on eurozone economic growth.
If we now look at the specific French PMI we are told this.
As a result, the HCOB Composite PMI Business Activity Index has declined once again, marking the fourteenth consecutive month in which the French private economy has failed to register growth.
As you can see whilst the latest numbers are outside of the third quarter the view was of a decline rather than strong growth (0.5%) for these times. We are told it is because of Aerospace exports which adds to the inventory growth earlier in the year and if we look further back remember when the French numbers were influenced by the delivery of a large liner? They seem to have a lot of rabbits in their statistical hat.
Other Nations
Apart from France Euro are growth is either picking up or in the case of Spain continuing.
Even when excluding Germany and France, the composite PMIs for the rest of the eurozone show the strongest growth in two-and-a-half years. In this sense, the recovery is gaining broader traction.”
QT
Dr Isabel Schnabel has spoken on this issue and let me highlight a crucial point from her speech.
Finally, sometime after the launch of the structural LTROs, we will start building up a new structural securities portfolio.
It is kind of her to make my post of the 30th of October look so good. In my view they had to respond to the move from the US Federal Reserve and if you understand the way these people operate it always starts with a denial.
Quantitative normalisation is proceeding smoothly, says Executive Board member @Isabel_Schnabel
If that was not a clear enough signal for you the change of name from QT to QN is a give away.
The significant part below is the discussion of new purchases or the opposite of QT.
Finally, policy stance neutrality, the need to maintain policy space and considerations related to financial soundness are important factors that will guide the maturity of assets the ECB will buy under a new structural securities portfolio. These factors suggest tilting the structure towards shorter-dated assets.
Wouldn’t it be an unfortunate occurrence if some how along the way shorter-dated became long-dated. Only extremists and financial terrorists could think of such a thing.
Oh and remember the claims of the likes of Kenneth Rogoff that cash is over? Another theme of mine is again in play.
In 2006 currency in circulation was in the order of €630 billion. Today, it is around €1.6 trillion, as the demand for banknotes has grown steadily over time.
Comment
It is not that common that the ECB gets better economic news so let is hope it is confirmed. We know that President Lagarde and Dr. Schnabel are particular fans of the series and take it much more literally than I do. This of course gives them quite a problem with France which they will deal with in the traditional central banking way which is to turn a blind eye to it.
Also there is a risk from the car industry which the European leaders seem to have got into quite a pickle.
The Nexperia incident has come to this point, far exceeding the scope of a single company and a single dispute. It has instead become a barometer for global investors to gauge Europe’s institutional credibility. The Dutch government has successively placed Nexperia under de facto control, bypassed the rights of Chinese shareholders in corporate governance, and unilaterally halted wafer supplies to Nexperia China. ( The Global Times)
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