Daily Economic Update

Kuwait: Fitch Ratings affirms sovereign credit rating at ‘AA-’ with a stable outlook. Ratings agency Fitch has affirmed Kuwait’s sovereign credit rating at ‘AA-‘ (stable outlook), on par with the UAE, on the fourth highest investment grade tier. Fitch remarked that Kuwait’s fiscal and external balance sheets were ‘exceptionally strong’, especially its net foreign asset levels, which are the strongest among Fitch-rated sovereigns and which are expected to rise further to 601% of GDP this year. Also, public debt is extremely low in relation to regional peers and emerging market standards, at 2.9% of GDP (FY2024), the agency stated. That said, the credit rating is constrained by the country’s continued high dependence on the oil sector and oil revenues to sustain a large public sector and high welfare spending, the pressures from which are straining the public finances and likely to lead to more substantive fiscal adjustments down the line. Fitch also noted that government efforts to address the fiscal and economic challenges are proceeding, with moves to bolster non-oil revenues and pass the long-delayed debt law. The latter will help widen financing options and lessen pressure on liquidity in the state’s General Reserve Fund.

Oil: Prices continue to slump amid weak demand and excess supply fears. Brent closed last Friday lower for the third consecutive week at $70.4/bbl (-3.9% w/w), extending year-to-date losses to 5.7%. Oversupply fears after OPEC+ agreed to begin unwinding supply cuts next month as planned and intensifying oil demand concerns amid President Trump’s tariff measures have increasingly weighed on sentiment. In fact, Brent briefly dropped to $68.5/bbl last week, its lowest since December 2021. A bigger-than-expected rise in US commercial crude oil inventories (+3.6 mb w/w in the w/e 23rd February), as reported by the US Energy Information Administration (EIA), put further pressure on prices. However, as the week drew to a close, President Trump’s announcement of potential sanctions on Russian banks and tariffs on Russian goods if Russia failed to reach a ceasefire deal with Ukraine helped limit losses somewhat. Market traders and analysts will be keenly awaiting the release this week of the latest oil market projections by the major energy organizations, OPEC, the IEA and the EIA.

Chart 1: Oil prices ($/bbl) Source: Haver

Japan: Real wages drop in January as inflation outpaces nominal growth. Nominal wage growth in January slowed to 2.8% y/y, down from a 4.4% gain in December. On the other hand, consumer prices (excl. rent) saw a stronger increase of 4.7% during the same month on higher prices of rice and fresh vegetables. As a result, inflation-adjusted wages declined 1.8%, ending two straight months of gains. However, real wages should receive some boost over the coming months after the resumption of energy subsidies in January (February’s inflation in Tokyo dropped to 2.9% y/y from 3.4% in January) and the results of spring wage negotiations, which will be reflected in the wage statistics in April and later. These developments could drive the Bank of Japan to hold policy interest rates steady at its upcoming meeting (18-19 March) as it awaits more evidence of sustainable wage growth.

Global: US February inflation key data point this week as tariff-related news-flow may continue to dominate headlines. In the US, tariff-related news-flow may continue to dominate headlines, especially with tariffs on some metal imports due to come into effect on Wednesday and with Trump threatening late last week to levy reciprocal duties on some Canadian dairy and lumber goods early this week. Meanwhile, CPI inflation for February is due on Wednesday with consensus estimates pointing to a tamer headline reading of 2.9% y/y from January’s 3% with the core rate also seen moderating to 3.2% from 3.3%. Meanwhile, markets will also be keenly parsing the University of Michigan survey results (due on Friday), as household sentiment has worsened lately along with expectations of higher inflation. In the Eurozone, it is a relatively quiet week in terms of data flow, but more importantly, the markets will keenly await further news regarding the planned increase in defense spending for the years ahead. In the UK, GDP figures for January will be released on Friday, with street expectations pointing to slower 0.1% m/m growth after December’s solid 0.4% rise. In China, the National People’s Congress meeting concludes on Tuesday, with markets awaiting further details about the government’s policies for 2025. Finally in Japan, household spending for January is due on Tuesday with consensus expectations pointing to an acceleration to 3.6% y/y from 2.7% in December while producer price inflation (Wednesday) is expected to ease to 4% y/y in February from 4.2% in January.

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