Global Economic Outlook, October 2025

USA

October will be an important stress test for the U.S. economy. If consumer spending stays firm and inflation keeps drifting lower, the Fed has room to stick with its easing path. But the labor market is walking a fine line, and with the flow of official data potentially disrupted, markets should brace for more volatility and a cautious Fed that won’t move without clearer signals.

U.S. Economic Review – September 2025

Growth & Activity

The U.S. economy continued to show solid momentum in September. The ISM Services PMI held at 52.0 and S&P Global Services came in at 54.5, pointing to ongoing expansion in the services sector. Composite PMI (54.6) eased slightly versus expectations but still reflected resilience. On the goods side, factory orders slipped –1.3% MoM, though stripping out transportation showed a healthier picture (+0.6% ex-transport, +1.0% core durables). That underscores steady underlying demand.

The Atlanta Fed’s GDPNow tracker was revised up to 3.9% for Q3, supported by robust consumption and retail sales (+0.6% MoM, +5.0% YoY). Q2 GDP was also revised higher to 3.8% QoQ, reinforcing the story of U.S. outperformance against its peers.

Labor Market

Employment data made it clear that the labor market is cooling, though not collapsing. Nonfarm payrolls increased by just +22k, unemployment edged up to 4.3%, and U6 climbed to 8.1%. ADP’s payrolls (+54k) and JOLTS openings (7.18M) both confirmed softer hiring, while weekly claims crept up—though still at historically low levels. On the brighter side, productivity rose 3.3% and unit labor costs slowed to +1.0%, easing wage-driven inflation pressure.

The government shutdown has delayed fresh releases, and this comes at a particularly delicate moment. The unemployment rate has moved toward the top end of what economists consider “full employment.” Participation is slipping, job creation has nearly stalled, and businesses are reluctant to add staff. At the same time, they aren’t cutting aggressively either. In short, the jobs market isn’t unraveling, but it’s walking a fine line. A pickup in end demand could trigger renewed hiring; a growth shock could tip the other way and feed a negative loop of weaker income, softer spending, and reduced hiring.

Inflation & Prices

Disinflation continued to build momentum. PPI fell –0.1% MoM (+2.6% YoY), with core also softer (+2.8% YoY). Core PCE—the Fed’s preferred gauge—slowed to 2.9% YoY, edging closer to the target but still above 2%. ISM Services Prices stayed elevated at 69.2, highlighting sticky cost pressures. Consumer inflation expectations remain a risk, with the Michigan survey showing 1-year expectations at 4.8% and 5-year at 3.9%.

Consumers & Housing

Consumer sentiment slipped, with Michigan at 55.4 and expectations at 51.8, suggesting households are cautious despite strong spending. Housing remains split: starts fell –8.5% MoM and the NAHB index dropped to 32, but new home sales surged +20.5% MoM, the strongest since 2020. Existing home sales eased slightly (–0.2% MoM). Mortgage rates edged lower (6.49–6.64%), supporting refinancing activity, though applications overall fell –1.2% MoM.

Trade & Policy

The trade deficit widened to –$78.3B, trimming some of the growth gains. Fiscal conditions remain stretched, with the August budget deficit at –$345B. That said, Treasury auctions drew strong demand, with yields easing (4W 4.06%, 30Y 4.65%). Liquidity remains ample—Fed balance sheet at $6.606T, reserves at $3.151T.

Energy & Industry

Energy data painted a mixed picture. Crude stocks rose 2.42–3.94M barrels, but gasoline inventories drew down sharply (–3.8M), pointing to strong refined product demand. Nat gas storage climbed (+55–71 Bcf). Oil rigs held around 414–424, showing only a slow recovery in production capacity.

Federal Reserve & Markets

The Fed cut rates by 25 bps to 4.25%, officially starting its easing cycle after two years of tightening. The dovish pivot, combined with softer inflation and weaker jobs data, sent Treasuries higher and kept the dollar capped despite firm U.S. growth. Equities found support in the services' resilience and the policy shift.

U.S. Economic Outlook – October 2025

October is all about inflation and consumer momentum. CPI, PPI, and retail sales will shape expectations for the Fed’s October 28 meeting, while the GDP report at month-end will frame the broader growth story. The labor market is fragile, industry is vulnerable, and fiscal risks are growing—but consumption and productivity continue to keep the U.S. economy on a stronger footing than its peers. For markets, that means volatile but resilient Treasuries, a capped dollar, and equities that still find support on dips.

Inflation Dynamics and the Fed

The U.S. still stands out among advanced economies as we head into October. Strong consumption, solid productivity gains, and steady services growth continue to offset labor market cooling and housing softness. Disinflation is progressing, but sticky service prices and elevated consumer expectations remain the main obstacles. With the Fed now easing and fiscal gaps widening, the near-term picture points to slower but still resilient growth into Q4—leaving the U.S. in a better position than Europe or Japan.

Inflation data will set the tone this month. We’ll get CPI (Oct 15), PPI (Oct 16), and PCE (Oct 31). These are the three main gauges that can tell us where the Fed goes next. That said, because the FOMC meets on Oct 28, the PCE release a day later will have little immediate policy impact. Services inflation—especially shelter and “other services”—remains sticky, and food prices continue to push higher (food CPI +3.2% YoY in August). Alternative core measures, such as trimmed mean or median, suggest underlying inflation still runs around 2.7% YoY. With inflation clearly above the Fed’s 2% target, sticky services could prevent policymakers from delivering another cut in October. On the flip side, low PPI growth and softer goods prices may give disinflation more traction, opening the door—albeit slim—for another 25 bps cut at the October meeting.

Consumers & Spending

Consumption remains the backbone of U.S. growth, and this month we’ll be watching Retail Sales (Oct 16), University of Michigan Sentiment (Oct 24, final), and the weekly Redbook reports. Retail sales surprised to the upside in August: +0.6% MoM (+5.0% YoY), or +0.7% excluding autos, far stronger than expected. That beat suggested households were holding up better than feared, keeping Q3 GDP tracking strong. But consumer sentiment tells a different story. The preliminary September Michigan survey dropped to 55.4 from 58.2, with both current conditions and expectations weakening. This mixing of strong spending but cautious sentiment raises the risk that consumption could cool more sharply if headwinds like slower income growth or tighter credit conditions build in Q4.

Industrial & Business Activity

On the industrial side, September will bring Industrial Production and Capacity Utilization (Oct 17) and several regional Fed surveys. These will be important checks on whether the recent softness deepens. In August, total industrial production rose +0.1% MoM (+0.9% YoY), while manufacturing output increased +0.2% MoM. Capacity utilization held steady at 77.4% overall, with manufacturing at 76.8%. These rates remain below long-run averages—manufacturing is still about 1.4 percentage points under trend.

The latest data showed modest improvement: manufacturing rebounded, and mining/utilities helped offset earlier weaknesses. But with global demand under pressure, momentum looks fragile. Consensus points to another small increase in September (+0.1% MoM) and capacity edging toward 77.7% by quarter-end. One note: the Fed’s annual benchmarking revision in Q4 may shift reported levels.

Trade & Growth Data

External balances will come back into focus with the Trade Balance (Oct 7) and the Advance Q3 GDP Estimate (Oct 30). In July, the U.S. trade deficit widened to –$78.3B, driven by stronger imports. The goods deficit hit –$103.9B, while the services surplus narrowed to $25.6B. On a cumulative basis, this year’s trade gap is running wider than last year's. Still, the Q2 current account narrowed to 3.3% of GDP, showing some improvement.

Growth data remains firm. The third estimate of Q2 GDP came in at 3.8% annualized (1.0% QoQ), and the Atlanta Fed’s GDPNow is tracking Q3 growth near 3.8% as well. For the full year, though, forecasters are more cautious—S&P Global sees 2025 growth at just 1.9%, below trend. Even so, the U.S. remains a relative outperformer versus Europe, which helps attract flows into Treasuries and underpins the dollar.

Federal Reserve Policy – The October 28 FOMC Meeting

The October meeting will be the month’s defining event. Core PCE inflation is still hovering close to 3%, while the labor market is cooling. That combination makes it tough for the Fed to keep leaning on its easing bias, even if markets are still pricing it in. The complication this time is the lack of timely data: with a government shutdown delaying official releases, the Fed may stick to a cautious script—flexibility and data dependence.

That’s one reason I expect the dollar to finish October stronger, while Wall Street is likely to feel pressure into lower levels by month-end. If the shutdown drags on, investors and policymakers will have to lean more on private data and market proxies, which opens the door for energy prices, geopolitics, and global demand shifts to drive direction. The real risk here is the labor market: if weakness deepens, it could set off a negative loop of softer incomes, weaker spending, and reduced hiring—turning what’s now a fragile slowdown into something heavier.

USD and Wall Street in October

USD (DXY)

The dollar should stay range-bound with a slight upward tilt. The Fed’s easing bias, coupled with the lack of hard data, dampens hawkish bets unless inflation surprises. At the same time, a thin data calendar tends to cap rallies. Keep a close eye on the yield curve: stability at the front end versus swings in the 10Y/30Y will be key. A drop in term premium usually points to a softer dollar.

Wall Street (S&P 500 / Nasdaq)

Equities are set for a choppy, sideways month with a downside lean. On one hand, services resilience and easing inflation argue for support. On the other hand, missing data and policy uncertainty mean volatility stays high—giving the edge to bears. My playbook: buy quality names on pullbacks, focus on cash-rich mega-caps and services-driven cyclicals, and hedge with duration if inflation numbers come in soft.

UK

The UK faces a classic stagnation–inflation trade-off. Services are doing the heavy lifting, but manufacturing, construction, and external trade are keeping growth weak. Inflation is moderating but far from fully resolved, and with consumer confidence fragile, the BoE has little choice but to stay cautious.

UK Economic Review – September 2025

Growth & Activity

The UK economy delivered another mixed picture in September. On the positive side, services remain the backbone: the Services PMI rose to 54.2 and the Composite PMI to 53.5, both comfortably in expansion and ahead of expectations. That strength in services stands in stark contrast to construction, where the PMI stayed deep in contraction at 45.5, underscoring the drag from property and infrastructure weakness.

Monthly GDP for July was flat (0.0% MoM, +1.4% YoY) after Q2’s rebound, with the 3M/3M growth rate at just +0.2%. NIESR’s August GDP estimate pointed to modest momentum at +0.3%. Sector detail reinforced the split: services grew +0.4% (3M/3M), while industrial output fell –0.9% MoM and manufacturing dropped –1.3% MoM, keeping the goods-producing side of the economy under pressure.

Consumers & Housing

Households gave the economy a bit of a lift. Retail sales beat expectations, up +0.6% MoM (+1.1% YoY), with core sales also strong at +0.5% MoM. But sentiment didn’t follow through—GfK confidence slipped to –19, reminding us consumers remain cautious. Housing is equally two-sided: Halifax HPI rose +0.3% MoM and +2.2% YoY, while average mortgage rates eased to 6.86%. That’s a relief at the margin, but affordability remains stretched.

Inflation & Prices

Inflation progress has slowed. Headline CPI held steady at 3.8% YoY and core eased slightly to 3.6%. That’s disinflation, but only gradual. Meanwhile, inflation expectations moved up to 3.6% from 3.2%—a reminder that households still see price pressures as persistent.

Trade & External Sector

The external picture is still weak. The trade deficit widened to –£22.24B, with the non-EU deficit at –£10.16B. Brexit frictions and soft global goods demand continue to weigh heavily on UK trade.

Fiscal & Credit Conditions

Fiscal stress deepened in September. Public sector borrowing surged to £18B, adding to already stretched finances. Credit showed some summer improvement—mortgage approvals and lending rose—but overall money supply growth stayed uneven.

Bank of England & Policy

The Bank of England kept its policy rate at 4.0%. Interestingly, two members voted for cuts, showing a clear division inside the MPC. With inflation still sticky but growth softening, the BoE is walking a fine line. The signal is clear: rates are on hold for now, but a gradual dovish tilt is building as we head into 2026.

Market Take

Markets read September as a story of services resilience versus weakness in goods and construction. Sterling found some support from firmer activity and stubborn inflation expectations, but rate-cut risk capped the upside. Gilts eased slightly as traders priced in a slower and more cautious BoE policy path.

UK Economic Growth Outlook – October 2025

The UK enters October with growth still dependent on services, while manufacturing and construction remain soft, leaving only modest expansion overall. Disinflation is progressing, but at a slow pace—headline and core CPI are expected to edge lower, though services inflation stays sticky. Wage growth is cooling, unemployment is nudging higher, and consumer spending is capped by affordability pressures. Meanwhile, public borrowing keeps gilt supply in focus. With no MPC meeting in October, the BoE stays data-dependent into November, watching wages and services inflation closely. The base case remains a cautious hold, with easing risks later if labor and price pressures soften further.

PMIs

October opened on a weaker note. The latest S&P Global UK Manufacturing, Services & Composite PMIs all missed estimates. Services growth slipped toward stagnation, while Manufacturing PMI held steady at 46.2—its 17th consecutive month below 50. September marked the weakest expansion since early 2024, confirming a clear slowdown from the summer rebound.

Labor Market

On October 14, the ONS will publish employment, unemployment, wage, and vacancy data. Expectations are for unemployment to hold near 4.3% but with further declines in vacancies. Payroll growth, still running at 5.6% YoY, shows pressure remains, but momentum is fading. The balance between cooling jobs and sticky wage growth will be key for the BoE’s path.

Growth & Activity

The next look at activity will be the Monthly GDP for August (Oct 16). Consensus is for a modest +0.1% m/m, reflecting resilience in services offset by weak industry and construction. This should keep Q3 growth in positive territory, but not enough to change the broader narrative of stagnation risk.

Inflation

The BoE projected in September that headline CPI would rise slightly to ~4% in September (up from 3.8% in July and August). The uptick is largely due to administered price hikes and food costs, as the drag from earlier energy declines fades. Risks remain skewed toward sticky service prices and commodity-driven pressures (notably beef, cocoa, and coffee). Still, the BoE emphasized this rise is temporary and inflation should ease back toward 2% over the medium term.

CPI breakdown:

• Headline CPI (Aug): 3.8%
• Expected CPI (Sep): ~4.0%
• BoE Target: 2% (medium term)
• Risks: wage pressures, services inflation, commodity shocks

Bank of England Policy

The MPC left the Bank Rate at 4% in September, with two members voting for cuts. They signaled caution—recognizing sticky inflation but also weak growth and fragile consumer conditions. The next decision comes on November 6, where the BoE will reassess after a fuller data set.

Additional Key Data to Watch

• 21 Oct (Tue): Public Sector Finances (Sep) – borrowing and debt data ahead of the Autumn Budget cycle.
• 22 Oct (Wed): Inflation pack (Sep) – CPI, CPIH, RPI & PPI. This is the marquee release for the month. Market estimates: CPI 4.0% YoY, Core 3.7%, Services 5.8%, CPI m/m +0.3%. A sticky services print will be critical for BoE expectations.
• 24 Oct (Fri): Retail Sales (Sep) – consumer demand as Q4 begins.
• 24 Oct (Fri): GfK Consumer Confidence (Oct) – sentiment and expectations.
• Mid-to-late Oct: HM Treasury Forecasts for the UK economy and the OBR’s Economic & Fiscal Outlook (timing still subject to the fiscal timetable).

Macro Backdrop

The UK economy continues to walk a tightrope. Services are holding, but September PMIs confirmed business growth at its weakest in five months, and confidence among firms has dropped sharply. Disinflation is moving slowly, with risks tilted to sticky services inflation and elevated food costs. Fiscal conditions remain a key watch point, with borrowing high and the Autumn Budget looming in late November.

Pound Outlook – October

For October, I lean toward a slightly bullish/steady bias for GBP vs USD, mainly if dollar momentum fades and the UK avoids negative fiscal surprises. Still, the risk range is wide, and sentiment is fragile. Against the euro, sterling looks more vulnerable: persistent Eurozone stability and UK fiscal stress could tilt the balance to the downside, unless the UK delivers stronger-than-expected data.

The Autumn Budget speculation is already weighing on sentiment. Talk of tax hikes or spending cuts will dominate the political and fiscal narrative through October, with markets reacting to any early leaks or hints

EU

September reinforced the picture of a Eurozone economy stuck in low gear—growth barely positive, inflation right around target, and wide divergence across member states. Markets interpreted the data as low-growth with low inflation: bonds stayed well supported on subdued pipeline pressures and dovish ECB expectations, while the euro traded largely range-bound, reflecting the uneven mix of national performances. The risks continue to tilt toward stagnation rather than acceleration.

Eurozone Economic Review – September 2025

Growth & Activity

The economy hovered near stagnation through September. The Composite PMI held at 51.0, just above the growth threshold, while Services PMI slipped to 50.5, pointing to softer demand. Country detail showed divergence: France’s services and composite readings (49.8) lingered just under 50, while Germany’s services fell back into contraction (49.3), pulling its composite to 50.5. Construction remained a clear drag across the bloc, with PMI at 46.7.

Industrial output was mixed. Germany posted a rebound (+1.3% MoM, +1.5% YoY), Spain continued to grow (+2.5% YoY), but France slipped again (–1.1% MoM). The periphery shows some stabilization, but core manufacturing remains under pressure.

Labor, Consumers & Prices

The labor market continues to hold up, with unemployment edging down to 6.2%, its lowest in over a decade. But consumer momentum was soft, as retail sales fell –0.5% MoM (+2.2% YoY). Producer prices remained flat (+0.4% MoM, +0.2% YoY), underscoring the absence of inflationary pressures in the pipeline.

National inflation readings confirmed the disinflation story:

• Germany HICP: +0.1% MoM / +2.1% YoY
• France HICP: +0.5% MoM / +0.8% YoY
• Spain HICP: flat MoM / +2.7% YoY

Overall, Eurozone CPI held at 2.0% YoY, with Core at 2.3%, broadly aligned with the ECB’s target.

External & Sentiment

Confidence readings show a fragile recovery in expectations but deep pessimism in current conditions. The ZEW expectations index for the Eurozone rose to 26.1 (Germany: 37.3), but current conditions were still deeply negative (–76.4). The Sentix index slipped further to –9.2, showing investor confidence remains weak. Meanwhile, Germany’s current account surplus narrowed to €14.8B, pointing to softer trade momentum.

Policy, Rates & Markets

Bond markets reflected the strain of weaker growth and fiscal concerns. German 10Y Bund yields traded in a 2.25–2.77% range, while Spanish yields drifted higher as fiscal stress weighed on sentiment. Shorter maturities eased somewhat (Schatz 1.96%, Spain 3M 1.91%).

The ECB maintained its easing bias, with subdued inflation and stagnant growth providing room to stay accommodative. For markets, that meant continued support for bonds and a euro that stays capped, trading sideways without a strong catalyst.

Eurozone Economic Outlook – October 2025

The Eurozone steps into October with growth momentum fragile and inflation near target. Unemployment has edged higher to 6.3%, while the latest PMIs confirmed that manufacturing is still stuck below the 50 mark, underlining persistent contraction in the goods sector. Services are only just holding up, leaving the bloc close to stagnation.

Key Data & Events to Watch

• Oct 6 (Mon): Sentix Investor Confidence (Oct) – first sentiment snapshot for the month.
• Oct 6 (Mon): Retail Sales (Aug) – consumer spending trend heading into Q3/Q4.
• Oct 15 (Wed): Industrial Production (Aug) – test of whether July’s rebound carried through.
• Oct 17 (Fri): Full HICP (Sep) – complete inflation pack; focus on services and core.
• Oct 29–30 (Wed–Thu): ECB Governing Council & Press Conference – the month’s top policy event, hosted in Florence.
• Oct 31 (Fri): Euro area HICP Flash (Oct) – first look at October inflation.

ECB Monetary Policy Meeting – Oct 29–30, 2025

The ECB is expected to hold rates (Deposit Facility Rate at 2.00%, main refi ~2.15%), keeping a cautious easing bias but avoiding fresh cuts. The September flash HICP rose to 2.2% YoY (core ~2.3%, services ~3.2%). Inflation is near, or slightly above, target—enough to reduce the urgency for further easing. Monthly moves were not alarming, so policymakers are unlikely to react immediately.

With PMIs hovering around 50, manufacturing still struggling, and sentiment soft, the growth case is weak. But the inflation uptick makes it difficult to justify another rate cut. The base case is a dovish hold: no policy shift, but a tone that acknowledges fragility in demand while stressing patience on inflation.

President Lagarde’s recent remarks reinforce this view—she flagged inflation risks as “quite contained” and described current rates as “well placed.” That’s consistent with a pause, keeping the ECB data-dependent heading into year-end.

• Growth/Inflation Projections: September staff forecasts put 2025 HICP at ~2.1% and growth near 1.2%. With inflation back near target, the hurdle for further near-term easing is higher.
• Services Inflation: Still running ~3%+, this will be a key focal point in the press conference. If Lagarde highlights it, markets will read hawkish-hold; if she downplays it, dovish-hold.
• Credit Conditions: If the ECB signals banks are not easing credit enough, that argues for patience rather than new tools.
• Balance Sheet: Status quo expected; no formal shift in normalization pace.

Market Take

A hold with a cautious tone likely keeps Bund yields steady, the euro range-bound, and periphery spreads sensitive to any fiscal remarks.

• Surprise dovish tilt (focus on weak growth) → bull-steepens curves, weighs on EUR.
• Surprise hawkish tilt (focus on services inflation) → supports EUR, flattens curves.

Bottom line: October is about tone, not action. The statement and Lagarde’s Q&A will carry more market weight than the decision itself.

Japan

Japan’s outlook remains fragile. Growth is being held up by consumption and investment, but industrial weakness and persistent trade deficits remain a drag. Inflation is cooling faster than expected in core categories, raising the risk of slipping back toward disinflation. With long yields pushing higher and wage growth still firm, the BoJ faces a delicate balancing act: maintain dovish near-term guidance while preparing for mounting pressure to normalize if inflation proves sticky.

Japan Economic Review – September 2025

Growth & Activity

The economy showed modest but positive momentum in September. GDP rose +0.5% QoQ (+2.2% annualized), above expectations, with gains led by consumption (+0.4%) and external demand (+0.3%). Services activity was resilient: the Services PMI printed 53.1 and the Composite 52.0, both signaling expansion. Yet sentiment surveys told a more cautious story, with the Economy Watchers Survey at 46.7—still under the neutral 50 line.

Industry & Investment

Industrial production fell –1.2% MoM in July, with capacity utilization also slipping –1.1%, pointing to manufacturing softness. Still, investment momentum looked firmer: machine tool orders jumped +8.1% YoY, and the Reuters Tankan improved to 13 in September, hinting at business confidence returning despite output weakness.

Labor Market, Income & Credit

The labor market remains a source of support. Wages climbed +4.1% YoY, overtime pay rose +3.3%, and bank lending was up +3.6% YoY—showing both strong income gains and steady credit demand. Money supply growth was modest, with M2 +1.3% YoY and M3 at ¥2,219.7T.

Prices & Inflation

Headline inflation stayed above the BoJ’s target, with nationwide CPI/Core CPI at 2.7% YoY. Tokyo Core CPI eased to 2.5% YoY, showing some moderation, while underlying prices (ex-food & energy) slowed sharply to 1.0% YoY—the weakest in over a year. That sharp slowdown raises doubts about how durable Japan’s inflation momentum really is.

External Sector & Flows

Trade remained a weak spot. Exports were nearly flat (–0.1% YoY), while imports fell –5.2% YoY, leaving a –¥242.5B deficit. The adjusted current account surplus narrowed to ¥1.88T. FX reserves increased to $1.324T. In portfolio flows, foreigners were net buyers of bonds (+¥1.48T) but net sellers of equities (–¥2.03T), reflecting a defensive stance in global positioning.

Fiscal & Policy

The BoJ kept its policy rate at 0.50%, balancing weak growth with still-elevated inflation. But bond markets are testing that stance. The 30Y JGB yield climbed to 3.264% (a cycle high), the 10Y hit 1.612%, and the 5Y at 1.12% was the highest since 2011. Rising term premia underscore investor skepticism about how long ultra-easy policy can last.

Market Take

Markets read September data as carrying stagflationary risks: wage growth and inflation are still firm, but output and trade remain soft. The yen found support on policy-normalization narratives, while equities were mixed, pressured by higher financing costs. Rising JGB yields make clear that investor pressure on the BoJ to eventually normalize policy more decisively is only growing.

Japan – October 2025 Economic Outlook

Japan enters October with a fragile but shifting picture. August factory output fell more than expected, but METI’s survey points to a rebound in September and October, keeping hopes alive for industrial stabilization. Retail cooled in August, so September’s data will be critical for judging consumption momentum heading into Q4. Inflation remains around 2.7% YoY nationally, while Tokyo core CPI is cooling. The Tokyo CPI on Oct 30 will be the most timely signal of whether underlying inflation is easing further. Our base case: inflation holds steady into Q4.

Key Events & Data

• Oct 6 (Mon): BoJ Regional Economic Report (Sakura Report) – fresh read on regional demand, prices, and labor markets.
• Oct 8 (Wed): Balance of Payments (Aug, prelim.) – focus on the current-account surplus and portfolio/FDI flows.
• Mid-October: Industrial Production (Sep, prelim.) – expected rebound after August’s drop, as flagged by METI’s own survey.
• Oct 23–24: National CPI (Sep) – official inflation print ahead of BoJ meeting.
• Oct 29–30 (Wed–Thu): BoJ Monetary Policy Meeting & Press Conference – with the Outlook Report released alongside.
• Oct 30 (Thu): Tokyo CPI (Oct) – the bellwether for core inflation trends.
• Oct 31 (Fri): Retail/Wholesale Sales (Sep, prelim.) – key gauge of consumer demand momentum.

BoJ Preview (Oct 29–30)

After September’s hawkish dissent inside the Policy Board, markets see a non-negligible chance of a hike or at least a shift toward firmer normalization language. The base case remains hold, but with a hawkish tilt. If CPI surprises higher and industrial activity rebounds, risks move toward stronger forward guidance. The Outlook Report will be critical—especially the language on wage growth and services inflation.

Rising term premia in JGBs already show markets pressing the BoJ. Any hawkish shift will keep the JPY supported, while equities will stay sensitive both to policy tone and to signs of an industrial rebound. The early-October Tankan improvement tilts the risks toward a less-dovish message from the Bank.

China

China enters Q4 walking a fine line. Policy easing has helped provide short-term stability, but structural headwinds—persistent property-sector weakness, soft consumption, and global demand pressures—continue to cap the growth outlook. Inflation remains subdued, leaving room for further fiscal and monetary support. The base case is subdued but positive growth, with risks tilted to the downside if property weakness deepens or exports slow further.

China Economic Review – September 2025

Growth & Activity

Economic activity in September showed uneven stabilization. The Caixin Services PMI rose to 53.0, signaling robust expansion in services, while the Caixin Manufacturing PMI at 50.5 pointed to a mild return to growth. Still, hard data told a softer story: industrial production slowed to +5.2% YoY (Aug), below expectations, and fixed asset investment grew just +0.5% YoY, reflecting limited investment appetite. Retail sales rose +3.4% YoY, also missing forecasts, while the property market remained a major drag with house prices down –2.5% YoY.

Trade & External Sector

China’s external sector produced mixed signals. September saw a record trade surplus of $102.3B (¥732.7B), with exports up +4.4% YoY but missing estimates, and imports up just +1.3% YoY—evidence of still-weak domestic demand. By contrast, alternative August data showed exports contracting –1.2% YoY, imports –4.1% YoY, with a much smaller surplus of +$6.5B, highlighting volatility in trade flows. FX reserves rose to $3.322T, their highest since early 2022, reinforcing the PBoC’s external buffer and policy backstop for the yuan.

Inflation & Prices

Deflation risks re-emerged. CPI was flat MoM and –0.4% YoY, while PPI fell –2.9% YoY, reflecting excess capacity and weak pricing power in the industry. This backdrop keeps pressure on policymakers to sustain easing measures.

Credit & Liquidity

Credit dynamics were mixed. Total Social Financing (TSF) rose ¥2.57T, beating expectations on the back of fiscal-driven bond issuance, while new loans came in weaker at ¥590B, showing ongoing bank caution. M2 grew +8.8% YoY and outstanding loans +6.8%, pointing to only modest liquidity expansion. The PCSI sentiment index remained elevated at 72.82, but optimism has yet to translate into stronger consumer spending.

Labor Market & Consumers

The unemployment rate ticked up to 5.3%, underscoring labor-market fragility—particularly in youth employment and services tied to real estate. Consumer sentiment stayed weak, with spending still constrained despite targeted fiscal incentives.

Policy & Markets

Beijing maintained its mix of targeted monetary and fiscal easing: liquidity injections, infrastructure spending, and property support. Long-term risks remain, with the property downturn weighing on household balance sheets and corporate investment. Markets reflected this duality: the CNY stayed steady, anchored by strong FX reserves and PBoC management, while equities were mixed—balancing optimism around policy support with concern over weak fundamentals.

Market Take

Markets framed September as fragile stabilization:

• Positives: strength in services, record trade surplus, resilient reserves, rebound in credit.
• Negatives: deflation pressures, property drag, weak retail sales, and rising unemployment.

Net: the yuan is supported by policy backstops, but equities continue to show the weight of China’s structural challenges—slower growth, fragile confidence, and lingering property risks.

China – What to Expect in October 2025

China moves into October with a fragile recovery narrative. The Golden Week holidays should deliver a temporary bounce in services activity—travel, catering, and leisure spending—but the underlying picture remains soft in manufacturing, inflation, and credit. Without more decisive policy easing, growth risks remain tilted to the downside.

Growth Pulse – Q3 GDP in Focus

The Q3 GDP release (mid-October) will be the key growth marker. Consensus points to slower momentum versus H1, with quarterly growth around ~1.1% q/q, reflecting weak manufacturing and subdued domestic demand. Official PMIs highlight the weakness: manufacturing contracted for a 6th straight month in September (NBS 49.8), while non-manufacturing slipped to 50.0, right on the expansion line. Private-sector surveys (Caixin) are firmer, but the official readings confirm a sluggish backdrop.

Holiday Services Boost

The Oct 1–8 Golden Week should show strong holiday-driven demand. Rail travel set a record on day one, and authorities extended the break, making this one of the busiest holiday seasons in years. Expect a pop in high-frequency indicator mobility, box office sales, and catering receipts. But weather disruptions (Typhoon Matmo in Hainan/Guangdong) may dent some flows. The final tallies post-Oct 8 will help size the impact.

Inflation & Prices

Deflation pressures remain a core concern. The September CPI/PPI (Oct 10–12) release is expected to show:

• CPI hovering near 0% YoY or slightly negative
• PPI deflation is easing but still negative, pressured by excess capacity and discounting

Food price swings and weak consumer demand keep CPI soft, while producer prices continue to signal fragile industrial conditions.

Trade & Credit

• Trade (mid-October): Exports remain uneven, holding up to some Asian and African markets but slowing overall after August’s brief improvement. Imports should stay weak due to soft domestic demand.
• Credit: New yuan loans and TSF data will be closely watched for a post-holiday pickup. But the bigger picture is still one of tepid credit appetite—banks remain cautious despite policy nudges.

PBoC Outlook

The PBoC is expected to keep a measured easing stance. The Loan Prime Rate (LPR) was left unchanged in September, and the October baseline is for status quo, though modest rate or RRR cuts in Q4 remain possible if growth weakens further. Authorities have already deployed ~¥500bn in policy financing tools to support investment. The policy playbook continues to favor targeted measures over sweeping stimulus—balancing growth support with bank margins and currency stability.

Market Takeaways

• Equities: Services-linked names may get a holiday bump, but follow-through depends on GDP, trade, and CPI. Weak data could see gains fade.
• Industry: Sluggish production and soft prices argue for range-bound demand.
• Currency: CNH path will hinge on PBoC restraint versus the Fed’s trajectory—policy divergence remains the swing factor.

Key October Markers

• Oct 1–8: Golden Week activity (travel, catering, box office).
• Oct 10–12: September CPI/PPI.
• Mid-Oct: September trade data.
• Oct 17–20: Q3 GDP (with September retail sales & industrial output).

Emerging Economies

September 2025 Review

Overall, EMs remain highly sensitive to global demand, U.S. rates, and commodity prices, with domestic policy credibility defining who can weather the storm.

🇧🇷 Brazil (BRL)

Brazil continued to show signs of gradual stabilization. Industrial output slipped -0.2% MoM but managed a +0.2% YoY gain, while PPI deflation eased (-0.3% MoM). The Services PMI (49.3) and Composite PMI (48.8) remained below the 50-mark, but the pace of contraction has slowed. FX flows improved, with outflows narrowing to -$0.231B, reducing financial stress.

Market take: BRL found mild support as the contraction eased, and capital flight slowed.

🇲🇽 Mexico (MXN)

Consumers remained upbeat (confidence 46.7), but investment lagged sharply with gross fixed investment down -6.4% YoY / -1.4% MoM. Inflation was contained (CPI 3.57% YoY, core 4.23%), comfortably within Banxico’s tolerance band.

Market takes: Growth is increasingly consumption-led, but weak investment caps upside momentum, leaving the peso mixed.

🇿🇦 South Africa (ZAR)

The manufacturing sector stabilized, with PMI holding at 50.1, just above expansion. External buffers improved as FX reserves rose to $70.4B gross / $65.9B net. GDP advanced modestly (+0.8% QoQ annualized / +0.6% YoY), though current account deficits remain a persistent drag.

Market takes: Stronger reserves and stabilizing industry supported the ZAR, but external vulnerabilities continue to weigh.

🇹🇷 Turkey (TRY)

Turkey stayed in a high inflation adjustment phase, with CPI up +2.04% MoM / +32.95% YoY and core inflation sticky at +33.0% YoY. On the positive side, exports climbed to $21.8B, narrowing the trade deficit to - $4.17B, while the treasury cash balance swung to a surplus (+TRY 84.2B). Industrial production improved (+5.0% YoY).

Market takes: Trade and fiscal gains bolstered the lira, but persistently high inflation keeps policy credibility under question.

🇷🇺 Russia (RUB)

Russia leaned heavily on interventions and reserves. The central bank cut rates by 100 bps to 17% while stepping up FX interventions (-RUB 31.5B). Reserves rose to $685–712B, the highest in years, strengthening buffers. GDP grew +1.1% YoY (Q2).

Market takes: Heavy intervention and large reserves keep the ruble stable in the near term, but underlying structural pressures remain unresolved.

🇮🇳 India (INR)

India once again outperformed. The Services PMI (62.9) and Composite PMI (63.2) showed robust growth. Credit conditions were strong (M3 +9.8%), and FX reserves climbed near record highs ($694–703B). Inflation stayed moderate (CPI +2.07% YoY).

Market takes: India remains the standout EM story, combining strong growth, controlled inflation, and ample reserves—all supportive for the rupee.

🇮🇱 Israel (ILS)

Israel’s buffers strengthened further, with FX reserves at $230.3B, near record levels. Domestic demand, however, showed weakness as sentiment slipped (PCSI 44.9).

Market takes: Strong reserves back ILS stability, but soft consumer demand limits economic traction.

🇦🇷 Argentina (ARS)

Argentina’s economy was mixed. Industrial output declined (-1.1% YoY) and sentiment was low (PCSI 43.9). Yet GDP surged +6.3% YoY (Q2), and both the budget and trade balances posted rare surpluses. Unemployment eased to 7.6%.

Market takes: Surpluses offer temporary breathing room, but sustainability remains in doubt given weak investment and chronic volatility.

Overall Emerging Market Outlook

Emerging economies diverged in September:

• Resilient: India and Argentina stood out with strong growth and external strength.
• Stabilizing: Brazil, South Africa, and Turkey showed progress through better fiscal positions, smaller outflows, or stronger buffers.
• Fragile: Mexico and Israel struggled with weak investment and soft domestic demand.
• Managed: Russia relied on interventions and reserves to preserve stability.