Eurozone activity is expanding, but the upturn remains uneven. Germany is described as anchoring the recovery, while manufacturing in France and Italy continues to struggle, with domestic political uncertainty adding pressure in France. French PMIs have hovered around 50 for most of the year, suggesting that a modest dip into contraction would not, by itself, mark a decisive shift in the cycle; by contrast, Italian manufacturing is said to be slipping from its Q2 highs as output and new orders weaken.
Fiscal Policy Outlook and Risks
Attention is also on fiscal policy. Next year’s French presidential candidates are expected to commit to consolidation, and calls have been made for ECB support, which would imply balance-sheet expansion and could be negative for the euro. More broadly, stronger-than-expected fiscal tightening across the Eurozone is framed as a risk to domestic demand, with the potential to alter ECB expectations, affect Eurozone aggregates if France and Italy deteriorate for long enough, and drive a reassessment of euro valuations.
