“In the United States, the longest budget shutdown in recent history continues to cloud cyclical analysis by delaying the release of numerous economic statistics,” says Guy Wagner, Chief Investment Officer (CIO) of BLI - Banque de Luxembourg Investments. Nevertheless, third-quarter GDP data, published with nearly a two-month delay, point to robust growth of 4.3% at an annualized rate, driven primarily by the strength of household consumption. “This performance was, however, partly amplified by an increase in government spending in the defence sector, as well as by a contraction in imports following their sharp rise ahead of the introduction of tariffs.”
Economic growth in the eurozone in the third quarter was driven primarily by France and Spain
In the euro area, GDP growth reached 0.2% quarter-on-quarter in the third quarter, “with the expansion of business investment and public spending largely offsetting the negative contribution of net exports, which were weighed down by higher US trade barriers”. From a geographical perspective, growth dynamics were mainly supported by France and Spain, while economic activity remained sluggish in Germany. In China, growth remains subdued, reflecting weak private investment and domestic consumption, as well as the continued drag from the real estate sector. In Japan, the adoption of a supplementary budget by the new government is expected to support economic activity in 2026, albeit at the cost of heightened concerns over the sustainability of an already elevated public debt.
Federal Reserve: possible pause in the easing cycle
In December, the US Federal Reserve implemented a third consecutive 25-basis-point cut to the target range for the federal funds rate. The decision was not unanimous: Stephen Miran, close to the Trump administration, advocated a more pronounced easing of 50 basis points, while two members favoured leaving rates unchanged. “The statement released after the meeting suggested the possibility of a pause in the easing cycle in the coming months, with the December cut potentially reflecting a precautionary move in response to the still-uncertain risk of labour market deterioration,” says the Luxembourgish economist. In the euro area, the European Central Bank expressed confidence in the inflation outlook and growth prospects, considering that the current level of interest rates is consistent with achieving its price stability mandate while supporting economic activity.
USA: Inflation likely to remain consistently above the official 2% target
Despite the Federal Reserve’s monetary easing, the yield on the 10-year US Treasury rose in December. This movement reflects expectations of stronger economic momentum in 2026 as well as the perception that inflation will remain durably above the official 2% target, thereby reinforcing the divergence between short- and long-term interest rates. Following the U.S. trend, European sovereign yields also increased: the 10-year benchmark rate thus rose in the United States, Germany, France, Italy and Spain.
Stock markets end 2025 on a positive note
Equity markets ended the year 2025 on a moderately positive note, broadly extending the upward trend observed throughout the year before entering a phase of mild consolidation toward month-end, typical of periods of low trading volumes around the year-end holidays. From a regional perspective, performance was mixed: the S&P 500 slipped by 0.1% in U.S. dollars, while European equities continued to advance, with the STOXX Europe 600 rising by 2.7% in euros. In Asia, Japan’s Topix gained 0.9% in yen terms and emerging markets also performed well. “At the sector level, materials, financials and industrials recorded the strongest performances, whereas consumer staples, real estate and utilities lagged behind,” concludes Guy Wagner.