Growth green shoots in Europe
Eurozone momentum improved into year end as output rose, inflation steadied, and the ECB stayed patient, balancing better data with political noise and ongoing external uncertainties.
The euro area saw a buffet of significant data releases—CPI, PMIs, Unemployment – Basically the economic equivalent of a sequel trilogy. The good news is that growth momentum has picked up, moving from below-trend in Q3 to probably above-trend in Q4. Services remain stubbornly alive, manufacturing has found a pulse, and industrial production rose for a third straight month, led by cars and machinery. Most major economies joined the party, with France once again choosing to sit it out. The only real buzzkill was trade, where higher Chinese imports and a slimmer surplus reminded us that foreign demand isn’t exactly carrying Europe on its shoulders. Still, rising output and steady consumption suggest the euro area ended 2025 looking far better than it started.
Inflation, meanwhile, is behaving almost too well. Final December Harmonized Index of Consumer Prices (HICP) landed exactly where the flash said it would—2.0% headline, 2.3% core—while country prints stayed unchanged. Even the recent jump in wholesale gas prices looks more like a nuisance than a threat, thanks to historically weak pass-through. With growth improving and inflation on a short leash, the European Central Bank (ECB) can comfortably stick to its meeting-by-meeting, wait-and-watch approach. Chief Economist Lane made that explicit, noting that any upside inflation shock would require a “significant acceleration” in growth—an outcome that appears firmly hypothetical.
Politics supplied the usual background noise. In France, Prime Minister Lecornu is attempting the near-impossible task of muscling the 2026 budget through a fragmented National Assembly, likely via Article 49.3 or executive ordinances, assuming the Socialists don’t pull the no-confidence ripcord again. Elsewhere, Europe continues its slow, ceremonial disagreement over trade deals, defense procurement, and even—somehow still—the Greenland question. The result is more incrementalism, fewer grand fixes, and a continued reliance on “step-by-step” solutions that investors politely tolerate.
Monetary policy watchers also got their leadership cliffhanger resolved, as Boris Vujčić was formally nominated on January 19 as the next ECB vice president, with a June 1 start date. The move makes him the first representative from Eastern Europe to sit on the Executive Board—a historic milestone delivered in the EU’s preferred style: quietly, after extensive behind-the-scenes bargaining.
We continue to manage the strategies with no rate change in mind. We are careful on the duration, picking our spots when they show good value, but always wary of the geopolitical risks that sit on Europe’s doorstep.