Economy in Brief

In January, we see an uptick in the EU Commission indexes that chronicle conditions in the European Monetary Union. The overall index is up smartly to 99.4 in January from 97.2 in December with improvement in four of the five subindexes with construction being unchanged month-to-month and for three months in a row; construction is also the strongest sector among the five by a long shot. The top line EMU reading was last this strong in January 2023, two years ago, on an isolated reading. It was last stronger for a string of period March 2021 through February 2022, in the heat of the post-Covid revival, averaging 111.6 on that span and reaching a monthly value as high as 119.9.

Rank standings rise and firm The overall EU Commission index has the queue percentile standing at its 46.7 percentile, very close to the 50% mark that establishes the median for the series among the five components. Retailing and construction are both above their respective 50% marks, with retailing at a 56-percentile standing and construction at an 81.9 percentile standing. The weakest reading is on consumer confidence at a 26.6 percentile standing, while services have a 43.5 percentile standing with the industrial sector at a 43.4 percentile standing. Both the services and industrial readings are climbing up closer to their respective medians but not quite there yet.

Largest economies show the clearest turns All four of the largest economies showed monthly increases in January with the largest increase a 6.1% month-to-month increase by France; the smallest was a 1.3% increase by Italy. While that's good news, it's also true that all four of those readings had declined in December compared to November. For the rest of the countries of the Monetary Union, eight of those 14 countries experienced month-to-month setbacks to their overall confidence readings in January, but only 3 of those 14 countries had experienced contractions in December and only 3 of them had experienced contractions in November; and, in November, only one of the four largest economies had experienced contraction.

Generally, positive developments are afoot Generally speaking, the trends are moving in a positive direction despite monthly volatility across the 18 early reporting countries; 9 of them show queue percentile standings above the 50th percentile, 2 of those are among the four largest economies, Italy and Spain. Quite clearly conditions within the monetary union remain mixed but the upward momentum and recent improvement is unmistakable.

Sector performance in largest EMU economies Among the four largest economies, the industrial sector has an above 50 percentile ranking in France and in Spain. Germany, and Italy are lagging behind. Construction has above 50-percentile standing in each of the four largest economies except France where its percentile standing is in its 42nd percentile. Spain does not report consumer confidence, retailing, and services numbers separately. Among the remaining big three countries, only Italy has readings above its 50-percentile mark and those are only in retailing and services. Consumer confidence continues to lag everywhere with the highest assessment among the BIG-4 economies in Germany with the 45.8 percentile standing and the lowest in France at a 20.4 percentile standing.

Tracking improvement The chart at the top shows that in broad terms we can see the improvement is relatively long lived for the BIG-3 economies and in EMU. We can be hopeful that there really is a trend of improvement that is taking hold. From mid-2025 or so onward, there are steady improvements in gear. Two of the BIG-3 economies are improving along with the EMU aggregate; only Germany tends to flatline on that timeline. The recent improvement in Germany is a relatively new feature in what otherwise looks like German stability. These trends now have some length, making the momentum seem more durable.

European vehicle registrations rose 2% in December compared to November; year-over-year registrations are up by 4.5%. The three-month average in December is lower by 0.4% compared to where it was in November and the three-month average has a 12-month growth rate of 3.8% compared to the unadjusted rise of 4.5%.

The growth rate progression shows a 12-month growth rate of 4.5%, jumping up to a 19.5% annual rate over six months and falling back to a contraction of 4.8% at an annual rate over three months. However, the annualized growth rates calculated from three-month moving averages show a 12-month gain of 3.8%, a six-month gain of 8.1%, and the three-month gain of 10.8%. The 3-month smoothed data show that there is an ongoing acceleration in car registrations that is masked by volatility in the month-to-month numbers: the 10.8% growth rate over three months is quite a good sign if it can hold up and, of course, it's on the heels of 8.1% growth over six months.

Looking at the individual reporting countries Germany, France, Italy, Spain, and the United Kingdom, we see gains in registrations in December compared to November in three countries. In the U.K. registrations rise by 6.1% month-to-month, in Italy they rise by 4.2% month-to-month and in Germany they gain 1.8%; however, registrations fall on a month-to-month basis by 2.1% in Spain and by 1.5% in France.

The country level sequential growth rates show a mixed picture in Germany where registrations are up 10.6% over 12 months and accelerate to 19.5% over six months but are declining at a 16.8% annual rate over three months. In France registrations rise by 3.6% at an annual rate over three months; however, they are stronger over six months and they then are contracting over 12 months. In Italy registrations are up by 2.5% over 12 months, the growth rate jumps to 25.4% at an annual rate over six months, but then, over three-months, registrations fall at a 1.8% annual rate. Spain also shows erratic performance with the decline of 2.9% over 12 months, a gain over six months and then a decline at a 12.4% annual rate over three months. And the U.K. registrations trends are deteriorating with a 3.7% gain over 12 months, a 4.8% annual rate drop over six months, and then over three months the annual rate plunges to -30.8%.

The reporters in the table show registrations weaker than they were in January 2020 just before the COVID virus struck; overall registrations are lower by 12.2%. Registrations are down by 13.3% in Italy, down about 10% in Germany and France, down by 5.7% in Spain, while the U.K. registrations are lower at just 1.5%

Germany’s IFO readings in January show a bit more strength in the climate reading, nearly unchanged current conditions, and nearly unchanged expectations. These readings that tend toward small changes or unchanged readings are - and have been - characteristic of the IFO survey for most of 2025 where the various sector readings basically made some improvement through about the first quarter of the year and then pretty much flatlined for the rest of the year. Growth Dynamics in Germany have become fairly stagnant. The question is when something will occur that will light a fire under growth or, more unfortunately, send the economy back into a tailspin.

The climate readings on long-dated rankings are all weak with only one reading for construction above its 50th percentile and data back to 1993. However, on a shorter timeline looking at conditions just since February 2022 that marks the invasion of Ukraine, we have the climate reading at a 63.8 percentile standing, construction at an 89.4 percentile standing and wholesaling at a 72.3 percentile standing. Manufacturing also manages a positive standing at its 55.3 percentile.

Month-to-month in January, there are small changes afoot across the five sectors and all of them show some modest improvement except for services that backtrack slightly moving from a reading of -2.1 in December to -2.6 in January.

Current conditions show almost no change at all with a -4.8 reading in January compared to a -4.9 reading in December. Across sectors in January, there's about a two-point improvement in manufacturing, a small improvement in construction and more sizable improvement in wholesaling, a small improvement in retailing, and a step back for services.

For current conditions, the percentile standings on the long-view to 1993, again, show only construction with a reading above its 50th-percentile - that is, above its historic median - at 61.6%. The all-sector reading has only a 11.9 percentile standing which is quite weak and generally weaker than the individual sectors. That fact simply underpins the notion of how this coincident-weakness across all the sectors is unusual because the all-sector index has a weaker ranking than any of the individual industries or sectors on the long timeline. On the shorter timeline, construction, again, is at a 59.6 percentile reading, above its 50th percentile, wholesaling comes close at a 48.9 percentile, reading retailing is exceptionally weak at a 4.3 percentile reading, and services are at a 10.6 percentile rating also quite weak. The current index is dominated by weakness.

Expectations in January show a step back for the overall reading and that's based on weakness in services. There are nearly 3-points of improvement in manufacturing, unchanged readings in construction, a slight improvement in wholesaling, a sizeable 6-point improvement in retailing, and a weaker reading from services, which back off by half a point on the month. The percentile standings when data are ranked over the long period to 1993 show everything below the 50th percentile; all rankings are below their historic medians on that timeline. However, when compared to February 2022, marking the invasion of Ukraine, all of the readings are above their 50th percentile, generally in about the 80th or 90th percentiles, except for services that only manage a ranking in the 55th percentile.

This week, we take stock of key developments across Asia. The IMF’s latest outlook delivered several positive growth revisions, with India once again seen at the forefront of regional expansion, while China is still seen unlikely to reach a 5% growth target this year should it be adopted (chart 1). Between China and the US, a clear divergence in trade strategies persists. China has continued to pivot toward Asia to sustain relatively robust export growth, while the US has turned inward—effectively narrowing its trade deficit in line with President Trump’s objectives (chart 2). Within Asia, trade ties with China have become increasingly two-way, as China’s share as an export destination has risen steadily over the past decades to rival that of the US for many economies (chart 3).

In the AI space, notable developments emerged following reports that Chinese authorities may soon formally allow domestic tech firms to import Nvidia’s H200 chips. The news could provide a boost to US tech equities, although broader geopolitical risks remain a possible resurgent drag on sentiment (chart 4). Turning to Japan, last week’s Bank of Japan (BoJ) meeting left policy rates unchanged, as expected. However, the BoJ’s latest outlook report delivered upgrades to both growth and inflation forecasts—developments that could pave the way for further monetary tightening (chart 5), albeit likely only after near-term uncertainties, most notably upcoming snap elections, have passed. Ahead of the polls, the yen and Japanese government bonds have come under sustained pressure (chart 6), though short sellers may become more cautious given the risk of official intervention.

The IMF’s World Economic Outlook The International Monetary Fund (IMF) unveiled its updated forecasts last week in its World Economic Outlook (WEO) publication. On growth, World GDP growth for 2026 was revised up by 0.2 ppts to 3.3%, driven by a surge in technology investment, including AI. China and India each saw a 0.3 ppt upgrade to their growth forecasts, while Japan and South Korea received more modest 0.1 ppt upgrades. Within Asia, India continues to be seen as the region’s growth leader (chart 1). By contrast, despite the IMF upgrade, China is still not expected to reach 5% growth this year should it re-adopt such a target, though there has been some discussion of a lower target range of 4.5–5%. On the downside, only a handful of economies saw downgrades; in Asia, the Philippines stands out with a 0.1 ppt downward revision to 5.6% for the year.