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Daily Economic Update
02.03.2025Kuwait: Good start to the year for credit growth, led by gains in business credit. Domestic credit increased by 0.2% m/m in January, driving up the annual rate of growth to 4.1% y/y (December 3.7%). Underlying growth was stronger given that both lending for securities purchases and credit for banks/financial institutions decreased in January. Growth was mostly driven by business credit, which was solid for the second straight month (0.8% m/m; 4.8% y/y) and broad-based, with the “other services”, “industry”, and “construction” sectors in the lead. Household credit rose by 0.2% m/m in January (3% y/y), broadly in line with the average monthly growth of 2024 but a seven-month low, nonetheless. Overall, bank lending made a good start to the year. Meanwhile, driven by another jump (6.3% m/m) in the volatile public-institution deposits in January, resident deposits increased by a solid 0.8% m/m (4.8% y/y). Private-sector deposits inched up in January while government deposits fell for the fourth straight month. However, on a y/y basis, government deposits remain in the lead, increasing by 10% y/y, followed by private-sector deposits (4.7%), and public institutions deposits (2.3%). Within private-sector KD deposits, both CASA and time deposits increased by 0.3% m/m, with y/y growth for the former turning slightly positive (0.9%).
Kuwait: Inflation unchanged in January at 2.5%, but core rate eases to a more-than-4 year low. Consumer price inflation was unchanged in January at 2.5% y/y (0.1% m/m), though price pressures did intensify in the food and beverages category (the prices of meat, poultry and fruit notched up double-digit annual gains), up 5.2% from 5.0% in December. Inflation in other subcomponents was either stable, such as in the weightiest housing services category (0.9% y/y), or softer, as in furnishings & household equipment (to 3% from 3.5% in December). Slower price growth in the latter and in the clothing & footwear category (to 4.8% from 5.1% in December) as well as ongoing though easing deflation in the transportation category (to -1.3% from -1.5% in December) helped bring down the core inflation rate (excluding food and housing) to a more-than-four-year low of 2.4%. We expect inflation to average 2.5% for full-year 2025, down from 2.9% in 2024.
Egypt: CBE left interest rates unchanged but adopted more conservative language on rate-cuts. The Central Bank of Egypt’s (CBE) left interest rates unchanged (mid-rate 27.75%) at its 20 February meeting, its seventh consecutive hold. While the decision itself was not unexpected, the shift in tone of the accompanying press statement towards a more conservative approach to potential rate cuts was surprising. The bank noted that upside risks to inflation have increased since its last meeting on the back of heightened geopolitical tensions and potential trade friction due to tariffs as well as subsidy cuts introduced to improve the fiscal footing. Moreover, the CBE stated that economic growth should return to its full potential by end-FY25/26 (16 months from now) and that inflation will converge to its historical average (14% is the 10-year average, for reference) in the medium term. Inflation data for February is due shortly and we expect it to slow to 12–13% y/y (and average 15% in 2025 and 12% in 2026), driven primarily by the complete dissipation of the March 2024 EGP devaluation effect, a six-month pause in energy subsidy cuts, and a notable improvement in the availability of foreign currency at local banks. Assuming February’s CPI comes in as forecast, real interest rates will stand very high at around 15%, but could, assuming the CBE proceeds with its expected rate cuts, finish much lower by year-end.
US: Trump looks to reimpose 25% tariffs on Canada and Mexico as well as an additional 10% on China. President Trump said that the previously announced 25% tariffs on Canada and Mexico (10% on Canadian energy products) that were suspended for a month would take effect on March 4, along with an additional 10% on all imports from China. The president cited insufficient progress on curbing drug trafficking. He also threatened to levy 25% duties on EU imports. Combined, these trading partners account for about 60% of US total foreign trade. Mexico sought to avoid the tariff moves by suggesting levying matching duties on the country’s own imports from China. US Treasury Secretary Bessent called it an “interesting proposal” and urged Canada to do the same. While Canada has yet to respond, the Chinese commerce ministry vowed to enact countermeasures, the details of which are yet to be specified. As with the previous episode, there is a possibility of a last-minute deal that could help avert tariff measures. Nonetheless, such trade policy actions and retaliatory measures would inject economic uncertainty, hampering growth prospects (see our recent note on this – Economic Insight: US tariff drive increases uncertainty and clouds the economic outlook). The market reaction on Friday varied, with Chinese and wider Asian stocks lower and US equity markets swinging significantly (but closing +1.6% d/d) amid an evolving geopolitical and economic landscape (see below). UST 10Y bond yields also dropped by around 5 bps to close at 4.23%, near their lowest level since mid-last December.
US: Soft PCE inflation prints but falling personal spending adds to growth worries. PCE inflation in January eased to 2.5% y/y from 2.6% in December, with the core rate dropping to near its lowest level since early 2021 of 2.6% from 2.9%, in line with the consensus estimates. While goods prices reversed their deflationary trend, annual growth in generally stickier services prices moderated to the lowest in around four years. However, on a monthly basis, core price rises increased to 0.3% from 0.2% in December. Growth in nominal personal incomes accelerated to 0.9% m/m, the fastest increase in a year, from 0.4% in December, while personal spending recorded its first drop in almost two years, falling by 0.2% m/m after an increase of 0.8% in December, underscoring a pullback in consumer spending. Recent economic data, including retail sales, business and consumer surveys, have been relatively weak, impacted by adverse weather events and policy-related uncertainty.