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Daily Economic Update
19.10.2025Eurozone: S&P downgrades France’s credit rating; Prime Minister survives no-confidence votes. In an unscheduled credit review, S&P Global Ratings downgraded France’s credit rating to A+ from AA- on Friday, citing elevated budget uncertainty and severe political instability. This is despite Prime Miniter Lecornu surviving two no-confidence votes on Friday. The downgrade follows a similar move by Fitch in mid-September while Moody’s is due to release its rating update on 24 October. Reflecting the gravity of the current situation, S&P mentioned that “France is experiencing its most severe political instability since the founding of the Fifth Republic in 1958”. In an even more downbeat assessment, S&P added that “even if snap parliamentary elections were to be called and produce a clear majority in the National Assembly, there is no guarantee that this would smooth the path for a credible medium-term fiscal consolidation plan or economic reform implementation.” The budget draft that has already been submitted by Lecornu calls for a 4.7% of GDP budget deficit for 2026, down from an expected 5.4% this year. But he has shown tolerance to eventually accept, after negotiations with parties in parliament, a deficit of up to 5% in 2026; S&P forecasts a budget deficit of 5.3% in 2026. After the heightened political uncertainty led to an increase in French sovereign bond yields in the latter part of September and early October, yields have dropped recently, with the 10-year yield down by around 20 bps from recent peaks.
US: Several Fed officials call for an interest rate cut in the upcoming FOMC meeting; tensions with China de-escalating. Noting weakening in the labor market, several Fed officials called for a 25-bps interest rate cut in the FOMC meeting on October 28-29 but also remained cautious about persistent inflation. Governor Waller highlighted that the labor market showed “weakening in demand, relative to supply, even with substantially lower net immigration and a decline in labor force participation this year.” But he also underlined that job demand could potentially revive amid solid economic conditions, needing a more measured policy approach. St. Louis Fed President Alberto Musalem also supported lower rates but advocated remaining cautious about “any potential persistence in inflation, whether that persistence comes from tariffs, from lower supply of labor” or other factors. Minneapolis Fed President Neel Kashkari made similar calls, saying "there's more risk of a labor market negative surprise than a big uptick in inflation" but also mentioned that inflation could stay “at 3% for an extended period of time." But newly appointed Governor Miran continued to pitch for a larger 50-bps rate cut seeing risks from “too restrictive” monetary policy and worries about the latest US-China trade frictions. Markets widely expect the FOMC to deliver this year’s second 25 bps policy rate cut rate next week. Finally, in de-escalating trade tensions, US Treasury Secretary Bessent held online talks with Chinese Vice Premier He Lifeng last Friday and agreed to see him soon in Malaysia to prepare the ground for the Trump-Xi meeting in South Korea at the end of the month. Trump also labeled the current hostile situation with China as “not sustainable,” while saying that “we’re doing very well. I think we’re getting along with China.”
UK: GDP in August rebounds slightly but trajectory overall weak. The UK economy posted a slight rebound in August, rising 0.1% m/m (1.3% y/y), in line with the street expectation, following a downwardly revised -0.1% (1.5% y/y) in July. August’s rise was mainly driven by a 0.7% m/m increase in manufacturing versus a 1.1% decline in July, as services recorded no growth for two consecutive months. GDP has broadly flatlined in July-August, implying that the Bank of England’s (BoE) recently upgraded growth forecast of 0.4% q/q for Q3 looks optimistic for now. Given an ongoing weak employment backdrop, added uncertainty due to the Autumn budget next month, and expectations of no further monetary policy support from the BoE this year, the UK growth environment over the near term continues to be uninspiring.
Egypt: Authorities hike fuel prices amid IMF review discussions. The Egyptian government raised fuel prices for the second time this year on Friday, with prices increasing by an average of 12%. The move coincided with the ongoing combined fifth and sixth reviews of Egypt’s $8 billion Extended Fund Facility with the IMF. One of Egypt’s key commitments under the program is to fully close the gap between fuel costs and retail prices, excluding diesel, by end-2025. With this latest hike, most fuel types have now reached full pass-through levels, while diesel continues to be subsidized. Favorable factors such as lower global oil prices and a stronger exchange rate may help keep domestic fuel prices stable in the near term. The impact of the hike on food and transportation prices is expected to emerge gradually during the second half of October, likely pushing headline inflation higher in November, with year-end inflation projected at around 13% y/y from 11.7% now. Given this outlook, we expect that the Central Bank of Egypt will likely hold policy rates at its November meeting to assess the inflationary impact of the fuel price adjustment.
UAE: Dubai real estate sales growth rebounds in September from August’s 8-month low. Dubai real estate sales increased to AED54 billion ($14.8 billion) in September, up by 21% y/y from August’s eight-month low rise of 8%. The increase was evenly distributed between first sales (including off plan) and resales. First sales, which constitute 67% of total sales, were supported by apartments (+28% to AED24.9 billion) as well as plot sales (to AED5 billion, +95%). But sales growth in Q3 overall slowed from a six-quarter high of 48% in Q2 to 20%, totaling AED171 billion. Jumeirah Village Circle and the business bay area were the top performing localities. On the other hand, real estate sales growth in Abu Dhabi eased slightly to 39% in Q3, down from Q2’s 47%, to reach AED39 billion, supported by nearly doubling residential sales (to AED21 billion), according to data from Abu Dhabi Real Estate Center. In terms of funding, cash sales rose to 86% of total, up from 72% in the previous quarter, indicating more buyers with substantial liquidity, reducing the market’s sensitivity to interest rate changes as fewer transactions now depend on mortgage financing.
