This week we published our updated macroeconomic projections, and what is perhaps the most interesting observation in this forecast round, is the fact that economic outlook is broadly unchanged from the June round, despite all the political noise. In fact, as growth in the euro area surprised to the upside during the first half of this year, we have upgraded our GDP projection for this year. In the US, the economy has also held up well. In China, while the most recent data releases have been to the weak side, we have still revised up our growth forecast on the back of solid macroeconomic performance in the first half of 2025. Read more on Nordic Outlook – Caution, not crisis, 3 September 2025.
Euro area data this week largely confirmed that the economy remains on track. Unemployment rate fell to 6.2% in July from 6.3% in June, and inflation remains close to the ECB’s target. The flash estimate for headline inflation was at 2.1% in August, rising only marginally from 2.0% in July. Core inflation kept stable at 2.3%. These data prints will make the ECB’s job rather easy next week. Considering the better-than-expected macro performance this year, reduced trade policy uncertainty and the overall shift towards a more hawkish stance among the Governing Council, we think the ECB will maintain rates unchanged next week, and markets agree. We see no more cuts in the horizon. Read more in ECB Preview: Confident in the current monetary policy stance, 5 September 2025.
UK markets had a volatile week after the Prime Minister Keir Starmer did a backroom cabinet reshuffle with the move having the potential to sideline Chancellor Reeves. Reeves represents the more conservative fiscal line within the party. Until now, we have expected Labour to tighten fiscal policy significantly at the next budget to meet the fiscal objectives. But now, the prospects do not look promising and further FX and bond market selloffs are likely ahead of the next budget.
Also in politics, on Monday, focus turns to the no-confidence vote on the French prime minister Bayrou. Bayrou and his government are expected to fall with both the far right and the left-wing parties vowing to vote against his minority administration. President Macron can then choose a new premier or call for a snap election. We expect continued uncertainty in French politics to persist and do not see any significant improvements in public finances realistic in the near-term.
On data front, next week’s most important releases are all related to US inflation. The August PPI, due for release on Wednesday, will provide markets with the first sense of how tariff-related costs have continued to build. We wrote about the worrying details of the July release in RtM USD – The nature of inflation matters for the Fed, 19 August. Then on Thursday, the August CPI will illustrate how firms are passing through the cost increases to prices. Finally on Friday, the Fed will keep a close eye on the University of Michigan’s preliminary September consumer sentiment survey. Also in the US, The BLS will publish its preliminary annual benchmark revision to NFP data on Tuesday. The revision affects data from April 2024 until March 2025. We expect another negative revision of -400k.
In China, focus is on exports data released early on Monday. Exports have been surprisingly robust in light of the headwinds from tariffs.
