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Daily Economic Update
02.11.2025
Eurozone: ECB keeps rates steady; economic growth better than expected in Q3. The Eurozone economy grew by 0.2% q/q, slightly above expectations and an improvement from the 0.1% growth in Q2. Growth was uneven across member states, with France posting a better-than-expected 0.5% growth, supported by a rebound in exports, while Germany’s economy stagnated, weighed down by weak exports and industrial malaise. That said, the modest growth uptick suggests that the Eurozone is avoiding recession but remains vulnerable to external shocks. Meanwhile, inflation eased in October with the headline rate falling to 2.1% y/y, down from 2.2% in September, but the core rate was steady at 2.4%. The decline was driven by falling energy prices (-1.0% y/y) and slower increases in food and industrial goods, while services inflation inched up to 3.4%, reflecting persistent wage pressures. Finally, as widely expected, the European Central Bank (ECB) kept interest rates unchanged for the third consecutive time, maintaining the deposit facility rate at 2.0%. This decision reflects the ECB’s view that monetary policy is currently “in a good place,” with inflation hovering near its 2% target and the eurozone economy showing resilience – growing modestly in Q3 despite global trade tensions and geopolitical uncertainty.
US: Fed speak reveals divide among Fed officials about the policy interest rate path ahead. Following the FOMC’s decision to cut interest rates by 25 bps last Wednesday in a two-way dissent 10-2 vote and Powell emphasizing a December cut “far from” forgone conclusion, speeches from several Fed officials underscored deeply divergent views on the policy rate ahead. Non-voting members, Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack stated that they would have preferred to keep rates on hold given inflation pressures, while expressing difficulty about backing such a move at the December meeting. Raphael Bostic, Atlanta Fed president, another non-voting FOMC member, was concerned about market projections of further easing in interest rates and supported Powell’s stance about the December move. Meanwhile, Fed Board Governor, Chris Waller (a shortlisted candidate for the Fed chair role), continued to support more rate cuts, saying “the [data] fog might tell you to slow down, but it doesn’t tell you to pull over to the side of the road” and “the right thing to do with policy is to keep cutting.” For now, the futures market continues to signal over 60% probability of a rate cut in December.
US-China: Beijing eases rare earth export restrictions as US cuts fentanyl-related tariffs. China and the US reached a ‘temporary’ trade agreement following Trump and Xi’s meeting, aimed at de-escalating tensions that flared recently, mainly over export controls. The terms include a cancelation of the recently-threatened 100% US tariff on Chinese goods, a one-year delay of China’s expanded export controls on rare earth minerals, and an extension of the US’s reduced 10% reciprocal tariff for one year. The deal also outlines a resumption in Chinese purchases of US soybeans, ongoing cooperation on fentanyl control that would see fentanyl-linked tariffs on Chinese goods cut to 10% (from 20%), and resolving issues around TikTok’s US operations. The two sides will also suspend recently-imposed levies on each other’s ships. Additionally, the US would pause expanding restrictions on Chinese majority-owned subsidiaries. Trump mentioned that China has agreed to buy US energy products, and a US team would meet Chinese counterparts to explore the possibility of the same. He also floated the idea of dropping the remaining 10% fentanyl-tariffs if China continued to make progress on fentanyl curbs. The agreement offers short-term relief from escalating trade pressure, helps stabilize business sentiment, and may help in building confidence between the two sides for a more enduring agreement in the future. However, the agreement did not resolve fundamental differences between the two countries, but gave them more time to further reduce dependence on each other in key areas.
China: October PMI points to renewed weakness in industrial activity, reversing the tentative stabilization seen in September. The NBS manufacturing PMI fell to 49.0 in October, down from 49.8 in September, below consensus estimates of 49.6, marking its lowest level in six months, and the seventh consecutive month in contraction territory. The decline was broad-based, with the sub-indices for production, new orders, and employment all slipping further into contraction. Meanwhile, the non-manufacturing PMI edged up slightly to 50.1 in October from 50.0 in September, suggesting marginal expansion in services and construction, supported in part by seasonal boosts from the Golden Week holiday. The general PMI fell to 50.0 from 50.6, indicating stagnation in overall business conditions. Overall, these readings reinforce the view that China’s economy is struggling to regain sustained traction, and further policy easing may be needed to support growth heading into year-end.
Japan: Tokyo’s inflation increases in October, exceeding estimates, and putting pressure on the BoJ. Tokyo’s consumer price inflation rose in October to 2.8% y/y after remaining at 2.5% for two consecutive months. Meanwhile, core inflation (excluding fresh food) exceeded consensus estimates of 2.6% registering a 2.8% y/y increase, reversing a moderating trend since May, which will be concerning for the Bank of Japan. Elsewhere, industrial production rose 2.2% m/m in September, beating consensus estimates of 1.5%, and the strongest increase since February. Meanwhile, retail sales rebounded after August’s 0.9% y/y decline to record a 0.5% increase in September, but still missed consensus expectations of a 0.7% rise.
Saudi Arabia: Non-oil growth remained strong at 4.5% y/y in Q3. According to preliminary estimates released by GASTAT, GDP growth accelerated to 5% y/y in the third quarter of 2025 from 3.9% the previous quarter, the strongest since Q1 2023. Non-oil growth remained robust at 4.5% y/y (4.6% in Q2) supported by a broad expansion across all main economic activities and was the main contributor (2.6%) to overall growth. Meanwhile, oil sector growth rose to a three-year high of 8.2% y/y, accelerating from 3.8% in Q2 on the back of the ongoing unwinding of previous voluntary oil production cuts, and contributed around 2% of overall growth. Government activities grew by 1.8% y/y. GDP growth averaged 4.1% in the first three quarters of the year, aligning with our full-year forecast of 4% for 2025. Looking ahead, for 2026, we see the oil sector maintaining a strong pace of expansion on rising production levels, while non-oil growth could ease slightly due to signs of a more prudent PIF investment strategy coupled with modest growth in budgeted government spending as per the latest pre-budget statement.
Egypt: Fiscal pressures persist; CBE maintains confidence in the easing inflation path. Egypt’s fiscal position remains under pressure despite strong revenue performance, with the Ministry of Finance reporting a widening overall budget deficit of 2.5% of (estimated full-year) GDP in Q1 FY25/26, up from 2.1% a year earlier. The deficit reached EGP 516bn, driven by rapid growth in expenditures to EGP 1.15tn (39% y/y), outpacing solid revenue growth of 41% y/y to EGP 665bn. Tax revenues rose 37% y/y to EGP 566bn, reflecting ongoing efforts to enhance tax administration and broaden the tax base. A key fiscal challenge remains interest payments, which jumped 54% y/y to EGP 695bn, underscoring the weight of debt servicing on public finances and the importance of continued reforms to strengthen the fiscal buffers. Against this backdrop, the Central Bank of Egypt (CBE) expects inflation to continue easing, despite the recent and expected fiscal consolidation measures like the increases in fuel, electricity, and gas prices. Annual headline inflation averaged 12.5% in Q3 2025, down from 15.2% in Q2 2025, supported by moderating global commodity prices and the dissipation of previous shocks. The CBE views recent domestic price adjustments as temporary and already largely absorbed, and forecasts inflation to gradually decline to 14% by end-2025 and 10.5% in 2026, moving toward its 7% (±2%) target by end-2026. This disinflationary outlook, alongside improving productive capacity, and easing external pressures, reinforces expectations for a continued monetary easing cycle, subject to incoming inflation data.