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Daily Economic Update
17.03.2025US: Treasury Secretary doesn’t rule out recession possibility, calls for lower government spending. Treasury Secretary Scott Bessent mentioned in an interview that the Trump administration is putting “durable” and “robust policies” in place, which are leading to some adjustments and he didn’t rule out the economy going into a recession. He also warned that massive government spending of the past few years was unsustainable and vowed to put “things on a sustainable path” that could have otherwise resulted in a financial crisis. He downplayed the recent fall in the US stock markets, seeing Trump’s taxation, deregulation, and energy policies benefitting equities over the long term. He also put greater emphasis on delivering moderate inflation, better house affordability, and real wage growth.
Oil: Prices supported last week by softer gain in US inventories, open higher this morning on geopolitical risk. Brent futures settled at $70.6/bbl on Friday, notching a 0.3% w/w gain and ending a three-week streak of declines. Momentum has carried through this morning in Asian trading, with Brent above $71 on a combination of geopolitical risk – after President Trump ordered missile strikes against the Houthis in Yemen – and potential economic stimulus by the Chinese authorities. Nevertheless, sentiment has been mostly sour from deteriorating global trade tensions and improved only marginally last week after the US Energy Information Agency reported a less-than-expected 1.4 mb w/w rise in commercial US crude stocks (for the week ending 7 March) and a sharp fall in gasoline inventories (-5.7 mb w/w). Also supporting prices was a decline in the US dollar index, which fell to another 2025-low. Meanwhile, the International Energy Agency (IEA), in its March oil market report, downgraded its oil demand growth outlook for this year by 70 kb/d to 1.03 mb/d, citing “deteriorating macroeconomic conditions” from increased trade tensions linked primarily to escalating global tariffs. The softer demand growth projection still represents an improvement on 2024’s estimate of 830 kb/d, partly helped by lower oil prices. Global oil demand will increasingly depend on non-OECD Asia (accounting for 60% of the gains) and especially China for growth. There, demand for oil as petrochemical feedstock will account for the entirety of consumption gains this year. In the IEA’s base case, the combination of underwhelming oil demand growth and burgeoning oil supply coming on the back of unwinding OPEC+ supply cuts as well as ongoing non-OPEC flows will likely result in an oversupplied market, by at least 600 kb/d and possibly 1 mb/d if overproducing OPEC+ members do not abide by their compensatory cut promises.
China: Plans to boost domestic consumption underway. Amid fresh US tariff pressures and persistently weak domestic demand, China’s General Office of the Central Committee (an office directly under China’s ruling party) unveiled a "special action plan" aimed at boosting domestic consumption with measures including: increasing residents' income, establishing a childcare subsidy scheme, and preparing proposals to boost tourism, among other measures. While the plan seems wide-ranging, details were sparse. However, the plan does highlight China’s ongoing commitment towards addressing long-term structural issues such as the slowdown of wages and the inadequate social safety net.
China: Property doldrums persist but other metrics indicate a good start to the year. China’s property market woes continued in February with declines across the board, despite government measures to help shore up the struggling sector. On a monthly basis, new home prices dipped in February for the first time in two months (-0.1% m/m), while existing home prices fell 0.3% m/m matching January’s decline. However, in annual terms, both gauges showed softer declines, with new home prices falling by 4.8% (versus 5.0% in January) and existing home prices down 7.1% (versus 7.4%). The latest data suggests that the sector needs more stimulus over and above existing government policies. The government, for its part, has prioritized property market stabilization in its 2025 agenda, although existing structural challenges will likely continue to hinder a market turn-around. Meanwhile, retail sales in the Jan-Feb period posted the strongest increase since October at 4.0% y/y (from a 3.7% rise in December), in line with market expectations. Moreover, industrial production increased 5.9% y/y in Jan-Feb, beating expectations of a 5.3% increase while fixed asset investment also came in stronger than expected. In contrast, unemployment rose to its highest level in two years to stand at 5.4% in February (5.2% in January).
Global: Central banks expected to keep policy rates unchanged in this week’s meetings. In the US, the FOMC’s March meeting decision is due on Wednesday, and the committee is expected to keep the policy interest rate unchanged at the 4.25-4.5% range. Updated macroeconomic projections, including the famous dot-plot, will be released, with markets focused on the implied number of rate cuts for this year and the perceived impact on the Fed’s overall thinking and projections of the administration’s trade and other policies. In data releases, February’s retail sales growth is due today, with the consensus forecast pointing to a rebound of 0.7% m/m after a sharp drop of 0.9% in January. In the Eurozone, balance of trade for January will be released on Tuesday, with the consensus expecting a €14.1 billion surplus, down from February’s €15.5 billion figure. In the UK, the Bank of England will announce the results of the March MPC meeting on Thursday, with markets expecting a hold on the bank rate at 4.5% amid rising inflation and despite a weakening growth environment. January’s labor market indicators for the November-January period will be released on Thursday, with the street expecting a steady 5.9% y/y growth in pay (excluding bonuses), but a slightly higher unemployment rate of 4.5%. In China, the PBoC will announce its monthly decision on the one-year and five-year Loan Prime Rates on Thursday, with the market expecting no change at 3.1% and 3.6%, respectively. Finally in Japan, the BoJ is widely expected to keep its short-term policy rate unchanged at 0.5% on Wednesday, while indicating that it will be closely monitoring the outcome of wage negotiations and the effect of ongoing trade uncertainties.
Saudi Arabia: Inflation steady at 2% y/y in February. Consumer price inflation was unchanged at 2.0% y/y in February, but higher than consensus expectations of 1.9%. Inflation in housing and utilities eased for the fourth consecutive month to 7.1% from 8% in January, with housing rental inflation declining in parallel to 8.5% from 8.7% in January and from a peak of 11.6% in October 2024. The softer, albeit still high, housing inflation was offset by increased price pressures in miscellaneous goods & services (3.9% versus 3.3% in January) and food & beverages (1% from 0.8%), while deflation eased in a range of categories including clothing and footwear (-1% from -1.5%) and transport (-1.5% from -1.9%). On a monthly basis, inflation edged up by 0.2%, slightly less than the 0.3% increase in January and in line with expectations.