Financial Forecasts October 2025: Economies are holding up against political chaos for now

Despite a chaotic political environment with a trade war continually piling on announcements after the summer truce, economies are holding up, and we are still making some upward revisions (US, Brazil, UK, Emerging Markets). Many believed in a pause in tariffs and an end to uncertainty. We are far from that, with new announcements (100% on foreign films, pharmaceuticals, wood, etc.) and renewed threats against Europe, which is seeking to implement its DMA and DSA legislation (addressing monopolistic excesses and fake news). While the shock from tariffs is indeed stagflationary, resulting in slower growth and higher inflation, the United States would "only" lose 1 percentage point of growth compared to 2024, dropping from 2.8% to 1.8% after a strong Q2. The labor market appears to be deteriorating more than anticipated, with 78K jobs lost in the industry this year and unemployment rising to 4.3%, as we await more information after the shutdown. In any case, concerns about the labor market prompted the Fed to cut rates in September for the first time this year, and this should allow it to continue despite inflation rising above 3% in our view.Europe is still resilient, with unemployment at a historical low (6.2%) and jobs and wages on the rise. For France, we forecast growth at 0.7% despite an uncertain political context that is expected to persist... maybe until 2027. Till, Our leading indicators for Q3/Q4 remain positive. Germany has disappointed again, but we remain optimistic for the future: its growth is expected to rise from 0.2% this year to 1.2% in 2026. . In the Eurozone, inflation has risen to 2.2%, and the ECB is signaling a status quo, which we continue to challenge, with room for one last cut to 1.75% in December due to an expected decline in inflation to 1.7% next year.China has somewhat benefited in the early months of the trade war (5.3% in H1), but the manufacturing sector has been declining for six months, and the bulk of the tariff shock is still ahead of us. We maintain a growth forecast of 5% for this year and anticipate a slowdown to 4.5% next year.The geopolitical context remains concerning. While a peace plan for Gaza offers some hope, nothing is yet confirmed. Meanwhile Russia's attempt to invade Ukraine enters its fourth year without success, despite having four times as many troops and military spending amounting to 6% of GDP. Tensions with the EU have escalated, marked by multiple incursions of drones and military aircraft, alongside destabilization attempts in Moldova, France, Germany, the Baltic states, Finland, Denmark, and more. Defense has now become an urgent necessity in the short term and, unfortunately, a new "mega trend."