The Weekly Briefing from Capital Economics Can Europe compete in a fractured world?
Dec 5, 2025
Join Andrew Kenningham, Chief Europe Economist, Neil Shearing, Group Chief Economist, and William Jackson, Chief EM Economist, as they dissect Europe’s economic landscape. They discuss the fading optimism in Europe, slow fiscal stimulus, and Germany's cautious approach to debt. The trio explores Europe's competitiveness against the US and China, highlighting weak innovation and protectionist measures. With concerns over fiscal risks in Italy and France, they ponder Europe's military-industrial challenges amid rising geopolitical tensions.
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Spring Optimism Reverted To Status Quo
- Europe's spring optimism has largely faded back to the status quo with only modest fiscal changes in Germany.
- The fiscal moves avoided a squeeze but did not deliver a large growth-boosting splurge.
Slow Growth And ECB Rate Cuts Expected
- Capital Economics forecasts underwhelming Eurozone growth of about 0.8% for next year and falling inflation.
- They expect the ECB to cut rates from 2% to around 1.5% by year-end as core inflation eases.
Fiscal Risks Center On France, Not Systemic Doom
- France and Italy are the European public-finance concerns, with France the likeliest source of trouble.
- But the doom loop between sovereigns and banks is weaker today and the ECB has tools to limit contagion.