European improvement, not just US weakness

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients).

Paul Doyle

Head of European Large Cap Equities

Key takeaways

US growth has been downgraded and unemployment has risen, though less than in past slowdowns. Labour is tight due to early retirements and less immigration.
The US faces stagflation risk due to labour constraints rather than weak demand.
Europe has exited post-Covid stagflation, with inflation falling and interest rates easing, so economic performance has turned round.
Small caps are outperforming for the first time in years, driven by falling inflation, domestic demand and Germany’s €1 trillion stimulus.

Growth expectations for the US at the start of 2025 were too ambitious. Global growth has been downgraded from 3% to 2.7%, but the US was marked down by 0.6 percentage points to 1.5%. This slowdown has not damaged the labour market: unemployment has risen, but by less than in previous slowdowns. Bulls say the US is more service-driven and less cyclical. They also say private sector leverage is well contained and lower than before the global financial crisis, with banks better capitalised and artificial intelligence (AI) transforming the economy.

Interested in learning more?

How will tariffs impact the US, as well as the crackdown on immigration and the compounding effect of the ‘One Big Beautiful bill’? Why is Europe more attractive for investors?

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2 September 2025

2025年 September 02日

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Important information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). For marketing purposes.

In Switzerland:Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

Key takeaways

Interested in learning more?

Subscribe to insights

Latest articles

In Credit Weekly Snapshot – Take it to the limit (one more time)

In Credit Weekly Snapshot – If I could turn back time

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Important information

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