Economic, financial and monetary developments

Summary

At its meeting on 30 October 2025, the Governing Council decided to keep the three key ECB interest rates unchanged. Inflation remains close to the 2% medium-term target and the Governing Council’s assessment of the inflation outlook is broadly unchanged. The economy has continued to grow despite the challenging global environment. The robust labour market, solid private sector balance sheets and the Governing Council’s past interest rate cuts remain important sources of resilience. However, the outlook is still uncertain, owing particularly to ongoing global trade disputes and geopolitical tensions.

The Governing Council is determined to ensure that inflation stabilises at its 2% target in the medium term. It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

Economic activity

The economy grew by 0.2% in the third quarter of 2025, according to Eurostat’s preliminary flash estimate published on 30 October. The services sector continued to grow, boosted by strong tourism and, especially, by a pick-up in digital services. According to surveys, the pick-up reflects the fact that many firms have stepped up efforts to modernise their IT infrastructures and integrate artificial intelligence into their operations. Meanwhile, manufacturing was held back by higher tariffs, still-heightened uncertainty and a stronger euro.

The divergence between domestic and external demand is likely to persist in the near term. The economy should benefit from consumers spending more as real incomes rise. Unemployment, at 6.3% in September, remains close to its historical low, even though demand for labour has cooled. Households continue to save an unusually large proportion of their incomes, which should give them greater margin to increase spending further. Substantial government expenditure on infrastructure and defence, as well as the Governing Council’s past interest rate cuts, should underpin investment.

By contrast, the global environment is likely to remain a drag. Goods exports declined from March to August, reversing the earlier frontloading of international trade ahead of announced tariff increases. New export orders in manufacturing point to further declines. The full impact of higher tariffs on euro area exports and manufacturing investment will only become visible over time.

The Governing Council stresses the urgent need to strengthen the euro area and its economy in the present geopolitical environment, and welcomes EU leaders reaffirming this ambition at the Euro Summit on 23 October 2025. Fiscal and structural policies should boost productivity, competitiveness and resilience. It is essential to implement the European Commission’s competitiveness roadmap swiftly. Governments should prioritise growth-enhancing structural reforms and strategic investment, while ensuring sustainable public finances. It is also vital to foster further capital market integration by completing the savings and investments union and the banking union to an ambitious timetable, and to rapidly adopt the regulation on the establishment of a digital euro.

The Governing Council is committed to making retail and wholesale central bank money fit for the digital age. In this vein, the Governing Council decided at its meeting on 30 October 2025 to move to the next stage of the digital euro project. This will ensure technical readiness for potential issuance and support Europe’s digital sovereignty once the legislation has been adopted. The details of this decision are available in a related press release.^[1]

Inflation

Annual inflation increased to 2.2% in September 2025, from 2.0% in August. This was mainly because energy prices fell by less than before. Energy price inflation was ‑0.4% in September, up from -2.0% in August. Meanwhile, food price inflation eased to 3.0% in September, from 3.2% in August. Inflation excluding energy and food rose to 2.4%, from 2.3% in August, as services inflation ticked up from 3.1% to 3.2%, while goods inflation was again unchanged at 0.8%.

Indicators of underlying inflation remain consistent with the Governing Council’s 2% medium-term target. While firms’ profits are recovering, labour costs are set to moderate further owing to rising productivity and an easing in wage growth. Forward-looking indicators, such as the ECB’s wage tracker and surveys on wage expectations, point to slower wage growth over the remainder of 2025 and the first half of 2026.

Most measures of longer-term inflation expectations continue to stand at around 2%, supporting the stabilisation of inflation around the Governing Council’s target.

Risk assessment

The EU-US trade deal reached over the summer, together with the announced ceasefire in the Middle East and progress in the US-China trade negotiations, have mitigated some of the downside risks to economic growth. At the same time, the still volatile global trade environment could disrupt supply chains, further dampen exports, and weigh on consumption and investment. A deterioration in financial market sentiment could lead to tighter financing conditions, greater risk aversion and weaker growth. Geopolitical tensions, in particular Russia’s unjustified war against Ukraine, remain a major source of uncertainty. By contrast, higher than expected defence and infrastructure spending, together with productivity-enhancing reforms, would add to growth. An improvement in business confidence could stimulate private investment. Sentiment could also be lifted and activity spurred if the remaining geopolitical tensions diminished, or if the remaining trade disputes were resolved faster than expected.

The outlook for inflation continues to be more uncertain than usual on account of the still volatile global trade policy environment. A stronger euro could bring inflation down further than expected. Moreover, inflation could turn out to be lower if higher tariffs lead to lower demand for euro area exports and induce countries with overcapacity to further increase their exports to the euro area. An increase in volatility and risk aversion in financial markets could weigh on domestic demand and thereby also lower inflation. By contrast, inflation could turn out to be higher if a fragmentation of global supply chains pushed up import prices, curtailed the supply of critical raw materials and added to capacity constraints in the domestic economy. A boost in defence and infrastructure spending could also raise inflation over the medium term. Extreme weather events, and the unfolding climate and nature crisis more broadly, could drive up food prices by more than expected.

Financial and monetary conditions

Since the last monetary policy meeting of the Governing Council on 11 September 2025, market rates have remained broadly unchanged. The past interest rate cuts have continued to reduce bank lending rates for firms, which averaged 3.5% in August. Meanwhile, the cost of issuing market-based debt remained at 3.5% in August, as the longer-term yields on which such debt is priced have been relatively stable.

The annual growth rate of bank lending to firms edged down to 2.9% in September, from 3.0% in August. At the same time, corporate bond issuance slowed to 3.3% on a yearly basis. According to the October 2025 bank lending survey for the euro area, credit standards for business loans tightened moderately in the third quarter, as banks became more concerned about the risks faced by their customers. Firms’ demand for credit picked up slightly.

The average interest rate on new mortgages has barely changed since the start of 2025 and stood at 3.3% in August. Growth in mortgage lending ticked up to 2.6% in September, from 2.5% in August, on the back of a further increase in demand and unchanged credit standards in the third quarter.

Growth in broad money – as measured by M3 – slowed to 2.8% in September, down from 2.9% in August and an average of 3.8% over the first half of the year.

Monetary policy decisions

The interest rates on the deposit facility, the main refinancing operations and the marginal lending facility were kept unchanged at 2.00%, 2.15% and 2.40% respectively.

The asset purchase programme and pandemic emergency purchase programme portfolios are declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.

Conclusion

At its meeting on 30 October 2025, the Governing Council decided to keep the three key ECB interest rates unchanged. The Governing Council is determined to ensure that inflation stabilises at its 2% target in the medium term. It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. The Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

In any case, the Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation stabilises sustainably at its medium-term target and to preserve the smooth functioning of monetary policy transmission.

1 External environment

Global economic activity showed some resilience in the second quarter of 2025 and is expected to remain steady yet subdued for the rest of 2025, as some of the downside risks to global growth have been mitigated. Global trade turned out stronger than expected in the second quarter of 2025. Against a still volatile global trade policy environment, trade growth is expected to decelerate in the third quarter as frontloading effects fade and tariff effects become more visible. Headline inflation across OECD economies remained unchanged in the aggregate in August, with increasingly heterogeneous inflation dynamics across advanced economies.

Global growth showed some resilience in the second quarter, but the near-term outlook remains subdued. Since the September Governing Council meeting global real GDP growth in the second quarter has been revised upwards to 1.0% quarter-on-quarter, driven mainly by a revision of US GDP growth and upward surprises in emerging markets, especially India. The global composite Purchasing Managers’ Index (PMI) (excluding the euro area) declined in September while remaining in expansionary territory (Chart 1). Overall, the global PMI points to resilient growth in the third quarter with a noticeable improvement in services activity. During the third quarter the manufacturing output PMI continued to display volatility as firms processed input goods that had been stockpiled earlier this year. The services sector benefited from these frontloaded manufacturing activities as transportation services strengthened and global demand for artificial intelligence (AI) supported software services. Based both on the PMI readings and on the assumption that global manufacturing will stabilise, activity is expected to remain steady yet subdued for the rest of 2025.

Chart 1

Global output PMI (excluding the euro area)

(diffusion indices)

Global trade growth turned out stronger than expected in the second quarter, but underlying trade growth is slowing. Global import growth (excluding the euro area) slowed from 1.7% quarter-on-quarter in the first quarter to 0.9% in the second quarter, which was stronger than expected in the September ECB staff projections. The upside surprise was driven by national accounts data released in large emerging market economies, such as Egypt, Türkiye and especially India. There is no firm evidence from customs data on bilateral flows that high import growth in these countries reflects redirected Chinese exports. Looking through these idiosyncratic effects, global imports are expected to weaken further in the third quarter as frontloading effects fade and tariff effects become more visible.

Headline inflation across members of the Organisation for Economic Co-operation and Development (OECD) remained unchanged in the aggregate but has become more heterogeneous across advanced economies. In August 2025 the annual rate of consumer price index (CPI) inflation across OECD member countries remained unchanged from July at 4.1%; excluding Türkiye, it increased slightly to 2.8% (Chart 2). This was driven mainly by higher energy and food prices, while core inflation eased slightly to 3% (from 3.1% in the previous month). Inflation dynamics across advanced economies have become more heterogeneous in recent months. While headline inflation has remained steady at around the 2% target in Canada and several other advanced economies, it has edged up in the United Kingdom and the United States.

Chart 2

OECD CPI inflation

(year-on-year percentage changes, percentage point contributions)

Energy prices declined, reflecting both lower oil prices amid a growing supply surplus in the oil market and a decrease in gas prices. Crude oil prices decreased by 4% as the market experienced growing demand-supply imbalances. On the demand side, prices were negatively affected by subdued global oil consumption following the economic disruptions triggered by US tariff announcements and, more recently, by renewed US-China trade tensions. On the supply side, a surplus has become evident in recent data showing elevated output from Iraq and Kuwait in September. These developments reflect successive OPEC+ production increases since April, which continued into early October. The oil market surplus is also apparent in a recent build-up of inventories in OECD countries and in China. However, the downward pressure on oil prices stemming from these demand-supply imbalances was partly offset in the most recent period as new US sanctions on Russian oil companies provided some price support. European gas prices declined by 4% in response to milder weather forecasts, which more than offset the impact of strikes at French liquified natural gas (LNG) import terminals. More broadly, prices continued their downward trend of recent months, reflecting persistently low European consumption relative to historical levels and weak LNG demand from Asia. Metal prices increased by 7%, primarily driven by a sharp rise in copper prices following production disruptions at the world’s second-largest mine in Indonesia. In contrast, international food commodity prices fell by 3% amid a decline in cocoa prices. The drop followed expectations of increased supply after both Côte d’Ivoire and Ghana raised the minimum price paid to cocoa farmers.

US economic activity rebounded in the second quarter but is expected to decelerate in the period ahead. After contracting in the first quarter, real economic activity in the United States rebounded in the second quarter (up 0.9% quarter-on-quarter), pointing to stronger resilience in core GDP components than initially estimated. This resilience was underpinned by AI-related investments, stronger household balance sheets and a declining savings rate. Looking ahead, growth is expected to decrease amid weak employment growth and worsening consumer sentiment. The US labour market is continuing to slow, with non-farm payrolls rising by 22,000 in August, which was below market expectations. The release of the September jobs report has been delayed owing to the government shutdown, but alternative data sources suggest that the labour market loosened further.

Headline US personal consumption expenditure (PCE) inflation increased in August as tariffs continue to be transmitted through the pricing chain. Headline PCE inflation increased to 2.7% in August, whereas core PCE inflation remained at 2.9%. While the pass-through of tariffs to the prices of certain goods categories (e.g. household furnishings) appears to have peaked in recent months, it is ongoing in other categories (e.g. apparel and cars). The delayed September CPI release points to a slight increase in headline PCE inflation in the short run and broadly unchanged core PCE inflation. The Federal Open Market Committee lowered the target range for the federal funds rate at its September and October meetings (by 25 basis points each time) to 3.75-4.00%.

In China, activity growth is set to slow, while price dynamics remain muted. Quarterly GDP growth edged up from 1.0% in the second quarter to 1.2% in the third quarter, mainly due to a strong export contribution. Momentum is expected to slow in the remainder of the year, as domestic demand is expected to remain muted and external headwinds are likely to increase. The downward adjustment of the property market is continuing, acting as a major drag on activity and exerting persistent downward pressure on house prices. Overall, the macroeconomic effects of the various policy packages announced in previous years have not yet been visible. Headline consumer price inflation increased slightly to -0.3% in September and producer price inflation eased to -2.3%. The impact of the Chinese authorities’ “anti-involution” campaign (including stiffer competition rules, industry-specific meetings for price coordination, and stepping up enforcement to curb predatory pricing and overcapacity) is likely to remain limited, as the measures are fragmented and sector-specific, and excess capacity is likely to persist.

In the United Kingdom, economic growth remains modest amid persistent inflation ahead of key fiscal decisions. Monthly GDP and high-frequency data broadly confirm the picture of subdued economic momentum, which is expected to continue in the second half of 2025. In addition, the Autumn Budget to be presented on 26 November is expected to entail fiscal tightening. Annual headline inflation was unchanged at 3.8% in September. According to the Bank of England, the renewed rise in inflation over the year is mostly explained by increases in administered prices and food inflation, coupled with waning base effects from past declines in energy prices. Services inflation also remains at elevated levels (4.7% in September). At its September meeting, the Bank of England kept the Bank Rate at 4% and decided to slow the pace of quantitative tightening.

2 Economic activity

The euro area economy grew by 0.2% in the third quarter of 2025, up from 0.1% in the second quarter. Available economic indicators point to robust growth in services, boosted by strong tourism and, especially, by a pick-up in digital services. According to surveys, the pick-up reflects the fact that many firms have stepped up efforts to modernise their IT infrastructures and integrate artificial intelligence into their operations. Meanwhile, manufacturing was held back by higher tariffs, still-heightened uncertainty and a stronger euro. The divergence between domestic and external demand is likely to persist in the near term. The economy should benefit from consumer spending more as real incomes rise. Labour markets have remained resilient, despite signs of softening labour demand. Households continue to save an unusually large proportion of their incomes, which should give them greater margin to increase spending further. Moreover, domestic demand is likely to benefit from more favourable financing conditions as the ECB’s interest rate cuts feed through to the economy, while increased government spending on infrastructure and defence should also support investment. By contrast, the global environment is likely to remain a drag. The full impact of higher tariffs on euro area exports and manufacturing investment will only become visible over time.

The euro area economy grew by 0.2% in the third quarter of 2025, up from 0.1% in the second quarter, according to Eurostat’s preliminary flash estimate. Although the expenditure breakdown is not yet available, short-term indicators and available country data point to a positive contribution from domestic demand, whereas net exports were more muted. Growth dynamics in the third quarter continued to be marked by considerable differences among the largest euro area economies: real GDP increased by 0.6% in Spain, by 0.5% in France and by 0.4% in the Netherlands, while it remained flat in Germany and Italy. Among the smaller countries, GDP declined only slightly in Ireland. The euro area outturn for the third quarter was in line with the September 2025 ECB staff macroeconomic projections for the euro area, after adjusting for the weaker estimated Irish contribution compared with the outcome.

Chart 3

Euro area real GDP, composite output PMI and ESI

(left-hand scale: quarter-on-quarter percentage changes; right-hand scale: diffusion index)

The available data point to persisting weakness in the manufacturing sector in the third quarter, while the services sector is likely to have continued to register positive growth. The composite output Purchasing Managers’ Index (PMI) continued to mark a slight upward trend in September, bringing the average indicator for the third quarter to 51.0. This is consistent with a positive – albeit modest – expansion in euro area economic activity, as higher tariffs, still-heightened uncertainty and a stronger euro negatively affected the manufacturing sector. Industrial production (excluding construction) decreased by 0.3% on average over July and August compared with the second quarter of 2025. The manufacturing output PMI decreased in September, compensating the temporary increase in August, with activity remaining broadly stagnant on average over the third quarter (Chart 4, panel a). The European Commission’s Economic Sentiment Indicator (ESI) for industry was unchanged in September and has been at low levels for many months. The ECB’s recent contacts with non-financial companies confirm this picture of sluggish growth, reporting that the manufacturing sector is being weighed down by tariffs and uncertainty amid sluggish demand, elevated operating costs and increasing global competition (see Box 5). Services sector growth is expected to have remained positive in the third quarter. The recent momentum in services production weakened slightly up to July, but survey data show an upward trend over the third quarter, with the PMI services activity reaching 51.3 in September (Chart 4, panel b). According to the ECB’s recent corporate contacts in the services sector, services activity has been driven by consumer spending on tourism, hospitality, entertainment and telecom services. It has also been boosted by a dynamic digital sector, reflecting the fact that many firms have stepped up efforts to modernise their IT infrastructures and integrate artificial intelligence into their operations.

Euro area real GDP is also expected to expand moderately in the fourth quarter of 2025, amid continued sectoral divergence. The increase in the flash composite output PMI for October is consistent with moderately positive growth momentum in the manufacturing sector at the beginning of the fourth quarter, while services PMI activity strengthened further, confirming the role of services as a main driver of the economy. At the same time, the latest forward-looking indicators are showing a mixed picture: in October, the increase in the composite PMI for new orders was driven by both sectors, whereas the decrease in the PMI business expectations in 12 months’ time was most notable in the services sector, with only a modest decline in manufacturing. Overall, the still-elevated uncertainty, higher effective tariffs, a stronger euro and increased global competition are expected to hold back growth in the fourth quarter of 2025.

Chart 4

PMI indicators across sectors of the economy

a) Manufacturing	b) Services
(diffusion indices)	(diffusion indices)

The labour market remained resilient in the second quarter of 2025, although labour demand continued to gradually soften. Employment and total hours worked increased by 0.1% in the second quarter of 2025 (Chart 5). The steady slowdown partly reflects a softening in labour demand, with the job vacancy rate declining to 2.3% in the second quarter – one percentage point lower than its peak in the second quarter of 2022. Meanwhile, the labour force continued to expand, supported by sustained migration and an increased participation of older workers. The labour force expanded by 0.3%, quarter on quarter, marking a 1.1% increase compared with the same period last year. At the same time, the unemployment rate stood at 6.3% in September, having remained broadly at this level since the beginning of the year.

Chart 5

Euro area employment, PMI assessment of employment and unemployment rate

(left-hand scale: quarter-on-quarter percentage changes, diffusion index; right-hand scale: percentages of the labour force)

Short-term labour market indicators point to broadly flat employment growth in the third quarter. The monthly composite PMI employment averaged 50.3 in the second quarter, suggesting broadly flat employment growth. Data from the flash release for October show some improvement in employment perceptions. The composite indicator increased from 49.7 in September to 50.8 in October. This was driven by the services sector, which rose from 50.1 to 51.8. By contrast, the PMI employment indicator for manufacturing declined from 48.5 in September to 48.0 in October.

Following a moderation in the second quarter of 2025, private consumption growth likely strengthened somewhat in the third quarter – despite the still-elevated household saving rate – supported by gains in purchasing power. While spending on services continued to expand, the consumption of goods broadly stagnated in the second quarter, driven by a drop in non-durable goods (Chart 6, panel a). At the same time, the consumption of durable goods increased. The household saving ratio rose to 15.5% in the same quarter, as income continued to expand, while inflation and consumption growth moderated. Monthly data for the third quarter, albeit still preliminary and incomplete, point to a weakening in retail trade in July and August compared with the second quarter. By contrast, the results of the ECB’s Consumer Expectations Survey point to stronger goods consumption in the third quarter, while the ECB’s recent contacts with non-financial companies signal robust growth in services consumption, supporting the narrative of some improvement in spending momentum (see Box 5). Further survey evidence also corroborates this assessment. The European Commission’s consumer confidence indicator continued to recover in September and October, largely driven by improving expectations for the financial situation of households and major purchases in the next 12 months (Chart 6, panel b). In addition, the European Commission’s business expectations for demand in both retail trade and consumer services in the next three months have improved since the second quarter, returning to their pre-pandemic average levels. Looking ahead, consumption should continue to strengthen, amid a resilient labour market, with ongoing growth in income and improving household perceptions of past income gains. However, despite the easing seen since April 2025, the still-elevated consumer and economic policy uncertainty should continue to weigh on household consumption decisions.

Chart 6

Household consumption and savings; consumer confidence and uncertainty, consumer and business expectations

a) Consumption and savings	b) Consumer confidence, uncertainty and expectations
(quarter-on-quarter percentage changes, percentage point contributions; percentages of gross disposable income)	(standardised percentage balances)

The incoming data for business investment point to weak tangible investment ahead, while growth in intangibles should pick up. Euro area non-construction investment fell by 3.3%, but continued to grow steadily, up by 0.6%, quarter on quarter, in the second quarter of 2025 when excluding volatile Irish intangibles. In the third quarter and beyond, the past trends in business investment excluding Irish intangibles appear to continue, with muted growth in tangible investment, while intangible investment is growing robustly. Indicators for tangibles, such as the capital goods PMI output, dropped in September and the European Commission’s confidence indicator remained far below its historical average (Chart 7, panel a). By contrast, intangible investment is likely to accelerate during the second half of 2025, on the back of rising production in associated services items up to July, as well as positive expected demand for these items three months ahead, according to the Commission’s survey. Evidence from corporate contacts confirms this split picture, revealing muted prospects for tangible investment amid continued uncertainty, high costs and market share losses in the manufacturing and automotive sectors, while intangible investment continues to grow amid surging demand for software and artificial intelligence (see Box 5). Looking forward, fundamental drivers of investment are gradually improving. Normalising profits, with positive growth in non-financial companies’ gross operating surpluses, and stronger expected aggregate demand ahead should further support investment.

Chart 7

Real investment dynamics and survey data

a) Business investment	b) Housing investment
(quarter-on-quarter percentage changes; percentage balances and diffusion index)	(quarter-on-quarter percentage changes; percentage balances and diffusion index)

Housing investment remained unchanged in the second quarter of 2025, but likely grew at a moderate pace in the third quarter. After growing by 0.4%, quarter on quarter, in the first quarter of 2025, housing investment was broadly flat in the second quarter (Chart 7, panel b). According to high-frequency indicators, housing investment rose slightly in the third quarter. Building construction production and specialised construction activities in July and August were on average 0.4% above the levels recorded in the second quarter. Moreover, survey-based indicators, such as the European Commission’s indicator for recent trends in building and specialised construction activities and the PMI housing output, improved from June to September but remained at low levels, also indicating moderate growth prospects in the third quarter. Looking ahead, housing investment is set to remain on a path of gradual recovery. This is confirmed by a continued, albeit modest, rise in residential building permits in the second quarter, as well as a limited rise in the European Commission's confidence index for building and specialised construction companies in the third quarter. The gradual recovery is also reflected in the balance between improving demand conditions – as indicated by the growing attractiveness of housing as an investment, according to the CES, and increasing demand for housing loans, according to the bank lending survey – and high uncertainty on the supply side – as indicated by respondents from the residential construction sector in the European Commission’s business survey and the ECB’s recent contacts with companies from that sector (see Box 5).

Euro area exports have been weighed down by rising US tariffs, a strong euro and weak global demand, contracting by 3.1% over three months to August 2025. The chemicals sector – in particular Irish pharmaceutical exports to the United States – saw sharp volatility owing to the anticipated tariff changes, while exports to China declined amid weaker demand and market share losses. Forward-looking indicators signal continued weakness in manufacturing export orders. Imports expanded by 1.2% over three months to August, with growing Chinese imports intensifying competition for domestic producers (see Box 1). The appreciation of the euro has lowered the cost of imports, especially from Asia, where very competitive pricing and manufacturing overcapacity persist. China’s share of euro area imports continues to rise, especially for intermediate goods. At the same time, Chinese export restrictions highlight supply chain vulnerabilities, as China remains a key supplier of the rare earth materials critical for euro area industries.

Beyond the short term, euro area activity is expected to recover, as the effect of trade-related headwinds on growth should diminish. Although the still-elevated uncertainty related to trade policies and the geopolitical landscape could dampen growth, the resilience built up over the past years, in particular the robust private sector balance sheets and the resilient labour market, should support consumer spending over time. Moreover, domestic demand should benefit from more favourable financing conditions as lower interest rates feed through to the economy, as well as from increased government spending on infrastructure and defence.

3 Prices and costs

Annual euro area headline inflation increased to 2.2% in September 2025, up from 2.0% in August.^[2] This rise was due mainly to energy prices falling by less than before. Indicators of underlying inflation remain consistent with the Governing Council’s 2% medium-term target. Annual growth in compensation per employee stood at 3.9% in the second quarter of 2025, unchanged from the previous quarter. While firms’ profits are recovering, wage growth is expected to ease over the remainder of the year and, together with rising productivity, contribute to a further moderation in labour costs. Most measures of longer-term inflation expectations still stand at around 2%, supporting the stabilisation of inflation around the target.

Annual euro area headline inflation, as measured in terms of the Harmonised Index of Consumer Prices (HICP), went up to 2.2% in September from 2.0% in August (Chart 8). This increase reflects a rise in energy inflation and an uptick in services inflation. In the third quarter of 2025 the euro area inflation rate stood at 2.1%, broadly in line with the September 2025 ECB staff macroeconomic projections for the euro area.

Chart 8

Headline inflation and its main components

(annual percentage changes; percentage point contributions)

Energy inflation remained negative in September but rose to ‑0.4%, up from ‑2.0% in August. This increase mainly reflects a positive base effect from the low month-on-month rate of growth in prices for transportation fuels in September 2024 falling out of the annual rate calculation. The still negative annual rate of inflation in the energy component for September 2025 was due to small negative rates for all its main sub-components (transportation fuels, electricity and gas). At the same time, HICP inflation excluding energy remained unchanged, standing at 2.5% for the fifth consecutive month.

Food inflation decreased to 3.0% in September, down from 3.2% in August. This decline is attributable to the fall in unprocessed food inflation, down to 4.7% in September from 5.5% in August, mainly on the back of lower annual rates of growth in prices for vegetables and fruits. Over the same period, processed food inflation was unchanged at 2.6%, with the tobacco component continuing to contribute substantially to its annual rate of growth. Excluding this component, the annual rate of change in processed food prices stood at 2.2%, also unchanged from August.

HICP excluding energy and food (HICPX) inflation increased slightly to 2.4% in September, up from 2.3% in August. The developments in HICPX inflation reflect the uptick in services inflation to 3.2% in September from 3.1% in August and the continued sideways movement of non-energy industrial goods (NEIG) inflation, standing at a moderate 0.8%. The increase in services inflation was driven by higher annual rates of growth in the communication and recreation sub-components, in particular accommodation services, which more than compensated for the decline in transport services inflation. The stable NEIG inflation rate conceals a rise in annual rates of growth in prices for semi-durable goods and non-durable goods, which were offset by a decline in durable goods inflation.

Indicators of underlying inflation remain consistent with the Governing Council’s 2% medium-term target (Chart 9). The indicator values ranged from 2.0% to 2.6% in September, with increases in most exclusion-based measures of inflation except for HICP excluding energy and HICPX excluding travel-related items, clothing and footwear (HICPXX), which remained unchanged at 2.5%. HICP excluding unprocessed food and energy and the trimmed means increased by 0.1 percentage points. As for the model-based measures, the Persistent and Common Component of Inflation (PCCI) fell further to 2.0% in September from 2.1% in August, while the Supercore indicator, which comprises HICP items sensitive to the business cycle, held steady at 2.5% for the third consecutive month. Domestic inflation, which comprises items with a low import content, went up slightly to 3.6% in September from 3.5% in August, reflecting the uptick in services inflation.

Chart 9

Indicators of underlying inflation

(annual percentage changes)

In August 2025 most indicators of pipeline price pressures for goods continued to moderate, implying a further reduction in inflationary pressures (Chart 10). At the early stages of the pricing chain, producer price inflation for domestic sales of intermediate goods remained unchanged at ‑0.3% in August. At the later stages, the annual growth rate of producer prices for non-food consumer goods decreased to 1.4% in August, down from 1.6% in July. Over the same period, the annual growth rate of import prices for non-food consumer goods slipped further into negative territory, while import price inflation for intermediate goods increased but remained negative. The annual growth rate of producer prices for manufactured food edged up to 2.0% in August from 1.8% July, suggesting that cost pressures are more persistent in the food segment than in the industrial goods segment. Import price inflation for manufactured food fell marginally to 5.8% from 5.9%, well below the peak of 10.6% in January 2025, reflecting the moderation in international food commodity prices. Overall, the data point to more persistent inflationary dynamics in the food segment, while pipeline pressures for consumer goods prices have broadly eased.

Chart 10

Indicators of pipeline pressures

(annual percentage changes)

Domestic cost pressures, as measured by growth in the GDP deflator, increased slightly in the second quarter of 2025, after declining continuously for two years (Chart 11). The annual growth rate of the GDP deflator rose to 2.5% in the second quarter of 2025, up from 2.3% in the first quarter. This increase was driven by a pick-up in the contribution from unit profits, which was only partially offset by a decline in the contribution from unit net taxes. Growth in unit labour costs was unchanged at 3.0% in the second quarter, reflecting stable growth rates for both compensation per employee and labour productivity, which stood at 3.9% and 0.9% respectively. Reconciling the unchanged growth rate for compensation per employee with the increase in negotiated wage growth, from 2.5% in the first quarter to 4.0% in the second quarter, implies a decline in the wage drift component from 1.1% to ‑0.4% over the same period. Looking ahead, the ECB’s wage tracker, which incorporates data on wage agreements negotiated up to the beginning of October 2025, suggests that wage growth pressures will ease in the second half of 2025 and stabilise in the first three quarters of 2026.^[3] This further moderation is confirmed by the latest survey indicators on wage growth, such as the results of ECB’s Corporate Telephone Survey, which imply that wage growth is expected to stand at 3.3% in 2025 (unchanged from the previous survey round) and slow further to 2.6% in 2026 (0.2 percentage points below the previous survey round).^[4]

Chart 11

Breakdown of the GDP deflator

(annual percentage changes; percentage point contributions)

Longer-term inflation expectations among professional forecasters and monetary analysts remained stable around 2%, while short-term consumer inflation expectations and perceptions moved broadly sideways in September. The median of longer-term inflation expectations in the ECB Survey of Monetary Analysts for October 2025 and the mean in the ECB Survey of Professional Forecasters for the fourth quarter of 2025 were unchanged at 2% (Chart 12, panel a). As regards short-term consumer inflation expectations and perceptions, according to the September 2025 ECB Consumer Expectations Survey, the median rate of perceived inflation over the previous 12 months stood at 3.1%, unchanged since February 2025. Moreover, median expectations for inflation over the next 12 months declined to 2.7%, following the increase to 2.8% in August from 2.6% in July, while median inflation expectations three years ahead remained unchanged at 2.5% (Chart 12, panel b).

Chart 12

Headline inflation, inflation projections and expectations

a) Headline inflation, market-based measures of inflation compensation, inflation projections and survey-based indicators of inflation expectations

(annual percentage changes)

b) Headline inflation and ECB Consumer Expectations Survey

(annual percentage changes)

During the review period from 11 September to 29 October 2025, there was little change in market-based measures of inflation compensation (Chart 12, panel a). Short and medium-term market-based measures of inflation compensation (based on the HICP excluding tobacco), in the form of inflation fixings and inflation-linked swaps, traded mostly sideways across all maturities and did not react significantly to incoming news. At the end of October 2025, market participants expected inflation to remain around 2% in the following months before declining around the turn of the year and then rebounding to settle slightly below 2% until 2030. Longer-term market-based measures of inflation compensation were also largely unchanged, with the five-year forward inflation-linked swap rate five years ahead still standing at around 2.1%. Model-based estimates of genuine inflation expectations, excluding inflation risk premia, indicate that market participants continue to expect longer-term inflation to be around 2%.

4 Financial market developments

During the review period from 11 September to 29 October 2025, developments in euro area financial markets were mainly driven by global factors stemming from renewed trade tensions, geopolitical uncertainty and the expected path of US interest rates. The euro short-term rate (€STR) traded within a narrow range following the Governing Council’s decision at its meeting on 11 September 2025 to keep all three key ECB interest rates unchanged. The short end of the forward curve remained broadly stable. At the longer end of the risk-free rate curve, overnight index swap (OIS) rates were also little changed. Euro area long-term sovereign bond spreads relative to risk-free rates narrowed further during the review period, and corporate bond spreads also tightened slightly. Equity markets recorded broad-based gains across most sectors, buoyed by a rise in expected earnings in the euro area. In foreign exchange markets, the euro continued to trade near the elevated levels reached earlier this year, despite a slight depreciation against the US dollar and on a trade-weighted basis.

Euro area risk-free forward rates were stable across the review period. The €STR stood at 1.93% at the end of the review period, following the Governing Council’s decision at its September 2025 meeting to leave all three key ECB interest rates unchanged. Excess liquidity decreased by around €117 billion to €2,534 billion. This mainly reflected the decline in the portfolios of securities held for monetary policy purposes, as the Eurosystem is no longer reinvesting the principal payments from maturing securities in its asset purchase programmes. The near-term risk-free forward curve shifted marginally higher on the day of the Governing Council’s September meeting but ended the review period little changed when compared with its pre-meeting level. Risk-free rates initially increased as markets took note of the September 2025 ECB staff macroeconomic projections for the euro area and the Governing Council’s view that risks to economic growth had become more balanced. There was a subsequent decline in the risk-free forward curve following a resurfacing of trade tensions between the United States and China, but movements were relatively subdued across the review period overall. At the end of the review period, markets were pricing in no further interest rate cuts for the remainder of 2025. The OIS curve ended the period little changed overall, with the ten-year maturity remaining at 2.4%. A marginal rise in long-term real risk-free rates was offset by a slight decline in inflation compensation over the review period. Inflation pricing in markets over the longer term remains close to the ECB’s target of 2%.

Long-term euro area sovereign bond spreads relative to risk-free rates narrowed slightly over the review period (Chart 13). The ten-year GDP-weighted euro area sovereign bond yield declined by 6 basis points to 3.0% during the review period, with the spread relative to the ten-year OIS rate tightening by 7 basis points. This slight narrowing of sovereign spreads was broad-based, despite some variation across euro area countries, with spreads tightening by between 5 and 11 basis points. Yield dispersion within the euro area remains at historically low levels. The marginal tightening in spreads occurred as euro area bond yields appeared more sensitive to global factors than to country-specific factors in Europe. Meanwhile, the ten-year US Treasury yield rose by 5 basis points to 4.1% and the ten-year UK sovereign bond yield fell by 22 basis points to 4.4% over the review period.

Chart 13

Ten-year sovereign bond yields and the ten-year OIS rate based on the €STR

(percentages per annum)

Euro area equity prices increased during the review period, as earnings expectations improved. Broad euro area stock market indices rose by 4.9% over the review period, with financial and non-financial corporations recording gains of 0.1% and 5.9% respectively. Both the cyclical and defensive sectors performed strongly, reflecting broad-based demand for equities driven in part by a rise in expected earnings in the euro area. The technology sector was an outlier and outperformed the broader index. In aggregate, euro area firms with significant exposure to international trade performed similarly to less exposed firms during the review period, although they have yet to recover the ground lost since the start of the year. US equity markets gained by 4.0% overall, with increases of 5.3% in the non-financial sector partially offset by losses of 3.9% in the financial sector. Rising expectations of interest rate cuts in the United States are likely to have weighed on financial corporations over the review period. In addition, US equities were relatively more volatile than their euro area counterparts over the review period, as trade tensions, the US Government shutdown and concerns relating to specific regional US banks gave rise to short-term bouts of uncertainty.

Euro area investment-grade and high-yield corporate bond spreads narrowed slightly over the review period. Spreads on both investment-grade and high-yield corporate bonds narrowed marginally during the review period, continuing the significant spread tightening observed in both sectors over recent months. Financial and non-financial investment-grade bond spreads tightened by 3 and 6 basis points respectively. High-yield spreads narrowed by 7 basis points on an overall weighted basis. Spreads on non-financial high-yield corporate bonds tightened by 10 basis points over the review period. However, financial issuers underperformed, with high-yield spreads for this sector widening by 21 basis points.

In foreign exchange markets, the euro continued to trade near the elevated levels reached earlier this year, despite a slight depreciation against the US dollar and on a trade-weighted basis (Chart 14). During the review period, the nominal effective exchange rate of the euro – as measured against the currencies of 41 of the euro area’s most important trading partners – declined by 0.2%. The euro depreciated by 0.4% against the US dollar, driven by shifts in expectations about US monetary policy and persistent trade uncertainties. Nevertheless, it traded within a narrow range of 1.155 to 1.184 against the US dollar, close to its historical average of 1.18. The modest decline in the euro’s nominal effective exchange rate was driven by offsetting and relatively small changes across major and emerging market currencies.

Chart 14

Changes in the exchange rate of the euro vis-à-vis selected currencies

(percentage changes)

5 Financing conditions and credit developments

The past cuts in the key ECB interest rates continued to pass through to bank funding costs and corporate borrowing costs through August. Average interest rates on new loans to firms decreased slightly to 3.5%, while those on new mortgages barely changed and stood at 3.3%. In September, growth in loans to households continued to gradually recover, while growth in loans to firms and corporate bond issuance were broadly stable. Over the review period from 11 September to 29 October 2025 the cost of market-based debt financing declined slightly, while the cost of equity financing was broadly unchanged. According to the October 2025 euro area bank lending survey, credit standards for loans to firms tightened moderately in the third quarter of 2025, as banks became more concerned about the risks faced by their customers, while demand for new loans to firms picked up slightly. Credit standards were unchanged for housing loans and tightened somewhat for consumer credit, while the demand for housing loans continued to increase strongly. In the Survey on the Access to Finance of Enterprises for the third quarter of 2025, which was conducted between 27 August and 3 October 2025, a small net percentage of firms reported an increase in bank interest rates as well as a continued tightening of other lending conditions. The annual growth rate of broad money (M3) slowed to 2.8% in September.

Bank funding costs continued to decrease slowly through August 2025, reflecting the past cuts in the key ECB interest rates. The composite cost of debt financing for euro area banks − which measures marginal bank funding costs − fell slightly in August (Chart 15, panel a), reflecting the continued pass-through of the past policy rate cuts to deposit rates and interbank rates. Bank bond yields continued to fluctuate at levels just below 3% (Chart 15, panel b), in line with lower long-term risk-free rates. The slight decline in bank funding costs was primarily driven by a lower composite deposit rate, which fell below 0.9% in August – down 57 basis points from its May 2024 peak. Interest rates on overnight deposits and time deposits of firms and households as well as interbank rates were broadly stable, while rates on savings deposits decreased substantially. The gap between interest rates on time deposits and overnight deposits for both firms and households was broadly unchanged in August, after gradually narrowing since its peak in October 2023.

Chart 15

Composite bank funding costs in selected euro area countries

(annual percentages)

Bank lending rates for firms decreased further, while mortgage rates for households increased marginally. The cost of bank borrowing for non-financial corporations (NFCs) decreased slightly to just under 3.5% in August − around 1.8 percentage points down from its October 2023 peak − with minor variations across the larger euro area countries (Chart 16, panel a). This decrease was driven by short-term rates, while rates for medium-term loans with a maturity of between one and five years rose. The spread between interest rates on small and large loans to firms widened somewhat in August amid short-term volatility. The cost of borrowing for households for house purchase barely changed and stood at 3.3% in August − around 70 basis points below its November 2023 peak − with some variation across the larger euro area countries (Chart 16, panel b). Mortgage rates were pushed up by longer-term rates in particular. The gap between lending rates for households and those for firms, which had peaked at 140 basis points in March 2024, continued to narrow. The size of this gap mainly reflects the fact that loans to households typically have longer rate fixation periods in many jurisdictions, making them less sensitive to fluctuations in short-term market rates.

Chart 16

Composite bank lending rates for firms and households in selected euro area countries

(annual percentages)

Over the review period from 11 September to 29 October 2025 the cost of market-based debt financing declined slightly, while the cost of equity financing was broadly unchanged. The overall cost of financing for NFCs – i.e. the composite cost of bank borrowing, market-based debt and equity – was stable in August compared with the previous month and stood at 5.7% (Chart 17).^[5] This reflected higher costs of long-term bank borrowing, which offset the decline in the cost of shorter-term borrowing. Daily data over the review period from 11 September to 29 October 2025 show that the cost of market-based debt declined marginally, while the cost of equity financing was broadly unchanged. The slight decline in the cost of market-based debt was driven by a compression of corporate bond spreads in both the investment grade and the high-yield segment. The cost of equity financing remained broadly unchanged over the same period, reflecting a small decrease in the equity risk premium coupled with a marginal increase in the long-term risk-free rate, as approximated by the ten-year overnight index swap rate.

Chart 17

Nominal cost of external financing for euro area firms, broken down by component

(annual percentages)

Dynamics in loans to firms and corporate debt issuance weakened slightly in September, while growth in loans to households continued to gradually recover. The annual growth rate of bank lending to firms edged down to 2.9% in September 2025, from 3.0% in August. This rate has increased gradually since the beginning of the year but is still below its historical average of 4.3% (Chart 18, panel a). The annual growth of corporate debt financing slowed to 3.0% in September from 3.2% in August. Loans to households continued to gradually recover, with the annual growth rate reaching 2.6% in September after 2.5% in August, although this figure is still significantly below the historical average of 4.1% (Chart 18, panel b). Loans to households for house purchase were again the primary force driving this upward trend, with consumer credit growth also increasing further. Other forms of lending to households, including loans to sole proprietors, returned to positive territory but remained weak. According to the ECB’s most recent Consumer Expectations Survey, households perceived credit access to be broadly unchanged in September, although they expected credit access to become harder over the next 12 months. Over time, the survey has shown that households perceived a tightening in credit access when interest rates rose during the recent tightening cycle but an improvement in access when interest rates fell, with higher-income households reporting the most noticeable easing (see Box 7).

Chart 18

MFI loans in selected euro area countries

(annual percentage changes)

The October 2025 euro area bank lending survey reports a small, unexpected net tightening of credit standards for loans or credit lines to firms in the third quarter of the year and unchanged credit standards for housing loans (Chart 19). Credit standards for loans or credit lines to euro area firms tightened slightly in the third quarter of 2025, although banks had in the previous round expected credit standards to remain unchanged. Perceived risks related to the economic outlook again contributed to a tightening of credit standards. Banks reported the current high levels of geopolitical uncertainty and trade risks as reasons for differentiating between sectors or firms when issuing new loans. Credit standards for loans to households for house purchase were unchanged and banks reported a moderate net tightening for consumer credit. While competition had an easing impact on credit standards for housing loans, changes in banks’ risk perceptions were the main drivers of the net tightening for consumer credit. Banks reported a net increase in the proportion of rejected applications across all loan categories, with a more pronounced net increase for consumer credit. For the fourth quarter of 2025, euro area banks expect credit standards to be broadly unchanged for loans to firms, to tighten slightly for housing loans and to tighten further for consumer credit.

Chart 19

Changes in credit standards and net demand for loans to NFCs and loans to households for house purchase

(net percentages of banks reporting a tightening of credit standards or an increase in loan demand)

In the survey banks reported a slight net increase in the demand for loans or credit lines from firms and a further substantial increase in housing loan demand in the third quarter of 2025. The demand from firms for loans remained weak overall in the third quarter of 2025 despite declining lending rates and increased financing needs for debt refinancing or debt restructuring. Several banks referred to global uncertainty and the related trade tensions as having a dampening impact on loan demand. By contrast, the demand for housing loans continued to increase substantially, primarily reflecting declining interest rates and improved housing market prospects. Falling interest rates, together with other factors, also supported consumer credit demand. This was, however, offset by lower consumer confidence. The net increase in demand for consumer credit was lower than in the previous quarter but in line with banks’ expectations. For the fourth quarter of 2025, banks expect unchanged loan demand from firms and a moderate increase in the demand for housing loans.

According to banks’ responses to the ad hoc questions, their access to funding was broadly unchanged for retail funding and better for wholesale funding, but perceived risks to credit quality continued to weigh on credit standards. In the third quarter of 2025 banks’ access to funding remained broadly unchanged for retail funding, while easing slightly for money markets and securitisation and more markedly for debt securities. Over the next three months, banks expect access to improve slightly for retail funding and to tighten slightly for money markets, while remaining broadly unchanged for debt securities and securitisation. The reduction in the ECB’s monetary policy asset portfolio had had a broadly neutral impact on market financing conditions for euro area banks over the last six months, with banks further increasing their holdings of euro area sovereign bonds. The impact on lending conditions remained muted, reflecting the measured and predictable adjustment of the ECB’s monetary policy portfolio. Banks expect these developments to continue over the next six months. Banks reported that the ECB’s decisions regarding its key interest rates had had a further negative impact on their net interest margins over the past six months, whereas the impact via volumes turned positive. Banks expect a similar, albeit smaller, impact over the next six months. Banks also reported that non-performing loans ratios and other credit quality indicators had had a small net tightening impact on their credit standards for loans to firms, while credit standards for housing loans and consumer credit were unaffected in the third quarter of 2025. For the fourth quarter, euro area banks expect credit quality to have a more noticeable tightening impact on their lending conditions for consumer credit and loans to firms.

In the latest Survey on the Access to Finance of Enterprises (SAFE), a small net percentage of firms reported an increase in bank interest rates and a larger proportion noted a continued tightening of other loan conditions. In the third quarter of 2025 a net 2% of firms reported an increase in bank interest rates, compared with a net 14% having reported a decline in the previous quarter. Notably, large firms continued to indicate a decline in interest rates in net terms (-3%, up from -31% in the previous round), whereas a net 5% of small and medium-sized enterprises (SMEs) reported an increase. A net 23% of firms (up from 16% in the second quarter of 2025) reported an increase in other financing costs, such as charges, fees and commissions, and a net 16% of firms (up from 11% in the previous quarter) reported stricter collateral requirements.

Firms reported that both their need for bank loans and the availability of such loans continued to be broadly unchanged and that the availability was expected to remain broadly stable over the next three months (Chart 20). The net percentage of firms reporting a decline in the availability of bank loans was 1%, compared with 1% having indicated an increase in the previous quarter. SMEs observed a small decline in the availability of bank loans (a net -2%, down from a net 1% perceiving an increase in the previous quarter), while large firms saw availability as unchanged (a net 0%). These developments are mirrored by the slight net tightening of credit standards for loans or credit lines granted to firms in the third quarter of 2025, as highlighted in the euro area bank lending survey. The bank loan financing gap indicator based on SAFE data – an index capturing the difference between changes in needs and availability – was broadly unchanged (a net 1% of firms experienced an increase in the financing gap, compared with a net -1% in the previous quarter). Looking ahead, firms expect the availability of external financing to remain broadly unchanged over the next three months, indicating a less optimistic outlook than in the previous survey round.

Chart 20

Changes in euro area firms’ bank loan needs, current and expected availability and financing gap

(net percentages of respondents)

Growth in broad money (M3) continued to weaken in September (Chart 21). Annual M3 growth edged down further in September, to 2.8% from 2.9% in August. It continued the progressive decline seen since February 2025 and remained well below its long-term average of 6.1%. Annual growth of narrow money (M1), which comprises the most liquid components of M3, increased to 5.1% in September, from 5.0% in August. M1 growth continued to be driven by overnight deposits, reflecting a strong preference for liquid assets among firms and households. From a sectoral perspective, the shift in the September data was strongly influenced by non-bank financial institutions, whose money holdings tend to be volatile. From a counterpart perspective, net foreign monetary inflows rebounded strongly in September from the moderate outflows seen in the previous two months. At the same time, the ongoing contraction of the Eurosystem balance sheet continued to weigh on M3 growth.

Chart 21

M3, M1 and overnight deposits

(annual percentage changes, adjusted for seasonal and calendar effects)

Boxes

1 China’s growing trade surplus: why exports are surging as imports stall

Prepared by Alexander Al-Haschimi, Natálie Dvořáková, Julien Le Roux and Tajda Spital

Amid US-China trade tensions and a shifting geopolitical context, China’s widening trade surplus, particularly in goods, has attracted considerable attention. Before the COVID-19 pandemic, Chinese exports and imports tended to move in tandem. Since then, however, a clear decoupling has taken place: goods exports have risen well above their pre-pandemic trend, while goods imports have stagnated below their 2021 level (Chart A). This divergence between export and import dynamics has resulted in a large trade surplus. For China’s trading partners, the implications are multifaceted: stronger competitive pressures from Chinese exports in their domestic markets, weaker Chinese demand for their goods, and increased competition in third-country markets. These trade dynamics reflect multiple factors. Structural policies promoting self-reliance – notably the “Made in China 2025” strategy – have reduced dependence on foreign inputs, given domestic producers a boost and curbed imports.^[6] At the same time, falling export prices and non-price competitiveness have supported exports.^[7] This box shows how weak domestic demand in China, typically associated with subdued imports, may be an additional factor in explaining strong exports – an aspect that is often overlooked.

2 Shifts in OPEC+ behaviour and downside risks to oil prices

Prepared by Massimo Ferrari Minesso and Arthur Stalla-Bourdillon

A key factor behind the recent decline in oil prices has been the changing stance of OPEC+.^[8] Oil prices have been on a downward trend over the past months, driven by two factors: weakening expectations for global demand after US tariff announcements, and OPEC’s surprise decision to increase oil supply (Chart A).^[9] Traditionally, OPEC has played a stabilising role in the oil market, with Saudi Arabia acting as a “swing producer”.^[10] However, OPEC has continued increasing oil supply since April 2025, despite already relatively low prices. In the past, OPEC’s decisions to hike supply seemed to be intended either to enforce compliance with production quotas among its members by allowing prices to fall, or to regain market share from non-OPEC producers. These same factors may also explain the group’s current behaviour.

3 Car demand in the euro area through the lens of the ECB Consumer Expectations Survey

Roberto A. De Santis, Johannes Gareis and Luis Molestina Vivar

This box draws on new data from the ECB Consumer Expectations Survey (CES) to examine households’ demand for cars in the euro area. The car sector plays a crucial role in the euro area economy, accounting for around 10% of manufacturing value added and close to 2% of real GDP. However, in recent years the sector has faced significant headwinds, with new passenger car registrations and production volumes in the second quarter of 2025 still around 20% and 30% below their early-2018 levels respectively (Chart A).^[11] The composition of registrations points to a notable shift in the types of car being purchased and helps explain the decline in overall registrations, with a reduction in internal combustion engine (ICE) car sales being only partly offset by an increase in sales of hybrid and fully electric vehicles. This box uses CES data collected in July 2025 to shed more light on the main factors shaping households’ car expenditure decisions in the euro area, which are an important component of overall car demand.^[12]

4 And yet we move: evidence on job-to-job transitions in the euro area

Prepared by Daniela Arlia, Clémence Berson and Agostino Consolo

This box presents novel data on job-to-job transition rates for the main euro area economies, complementing standard labour market statistics. When workers move from one job to another, it is usually to find a better match for their skills (improving productivity) or because they are able to negotiate a higher salary or obtain better conditions, e.g. in terms of working hours, work environment or commuting time (Moscarini and Postel-Vinay, 2016, 2017; Hahn et al., 2017; Karahan et al., 2017). An increasing number of job-to-job transitions indicates that firms tend to poach more workers from other firms before tapping the pool of unemployed or inactive persons. An analysis of job-to-job transitions can complement the assessment of the different margins of adjustment in the labour market and help gauge wage and productivity developments (Berson et al., 2024; Lagarde, 2025). Against this backdrop, the aim of this box is to compute job-to-job transitions for a subset of euro area countries and a proxy for the euro area aggregate in order to provide a more comprehensive picture of labour market tightness, which has implications for wage and price inflation.

5 Main findings from the ECB’s recent contacts with non‑financial companies

Prepared by Friderike Kuik, Richard Morris, Moreno Roma and Michal Slavík

This box summarises the findings of recent contacts between ECB staff and representatives of 71 leading non-financial companies operating in the euro area. The exchanges took place between 29 September and 9 October 2025.^[13]

Contacts reported a slight improvement in business conditions, but these remained consistent with only modest growth in activity (Chart A and Chart B). Manufacturing output was still weighed down by tariffs, uncertainty and challenges to competitiveness as well as relatively muted growth in consumer goods spending, with little improvement anticipated in the short term. Construction activity was, however, slowly turning the corner, and many contacts in the services sector pointed to good or reasonable growth, linked especially to consumer spending on tourism and hospitality and to investment in software, data solutions and artificial intelligence (AI).

6 Not all prices disinflate alike: disentangling the dynamics of sticky and flexible-price items

Prepared by Christian Höynck, Elisabeth Wieland and Lourdes María Zulli Gandur

Core inflation in the euro area has declined markedly since its 2023 peak but remains elevated, mainly due to persistent services price inflation. The annual rate of change in the Harmonised Index of Consumer Prices excluding energy and food (HICPX) has fallen substantially, from 5.7% in March 2023 to 2.4% in September 2025. However, it has stayed significantly above headline inflation for more than two years, underscoring its stickiness (Chart A). Within the HICPX, services inflation remains elevated, whereas non-energy industrial goods (NEIG) inflation has already returned to its pre-pandemic average. This box draws on micro price evidence on the frequency of price adjustments to disentangle the roles of sticky and flexible-price items in shaping recent disinflation dynamics in the HICPX.

7 The heterogenous transmission of monetary policy to household credit

Prepared by Dorian Henricot, Johannes Pöschl and Athanasios Tsiortas

The ECB’s monetary policy decisions affect loans to households, but in different ways depending on household characteristics and the type of loan. The effect of interest rate changes on a household’s decision to apply for a loan and a lender’s decision to grant a loan depends on various household characteristics. Data from the ECB Consumer Expectations Survey on credit access perceptions, loan applications and loan rejections reveal the differences in how monetary policy passes through to household credit.^[14]

8 Hitting record highs: unpacking support for the euro

Prepared by Ferdinand Dreher, Niklas Jütting and Hanni Schölermann

More than a quarter of a century after its introduction, the euro is enjoying record support among euro area citizens. Introduced in 1999 and brought into full circulation in 2002, the euro has become one of the most tangible symbols of European integration and is firmly ingrained in citizens’ daily lives. This is reflected in the results of the European Commission’s latest Standard Eurobarometer survey (2025), which showed that 83% of euro area respondents are in favour of the single currency – an all-time high, following a steady rise in support since the mid-2010s (Chart A).

Article

1 The 2021-23 high inflation episode and inequality: insights from the Consumer Expectations Survey

Prepared by Neus Dausà i Noguera, Georgi Kocharkov and Omiros Kouvavas

The high inflation episode of 2021-23 gave rise to pronounced movements in inflation, labour income, mortgage rates and household net wealth in the euro area (Chart 1). Inflation outpaced nominal labour income growth, mortgage rates nearly doubled, and the growth of household net wealth slowed significantly.^[15] However, the implications of these aggregate developments for economic inequality remain unclear. This raises the broader question of how shifts in inflation and interest rates are reflected in distributional outcomes, an issue central to economic research and policy debates.

Statistics