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Daily Economic Update
25.03.2025Kuwait: CPI inflation steady at 2.5% in February, core rate ticks up. Consumer price inflation was unchanged in February at 2.5% for the third consecutive month as price growth in most categories was stable. Food & beverages (5.2% y/y) and housing services (0.9%), the largest two components, were both unchanged from January. Core inflation, however, which excludes food and housing, edged up to 2.5% in February from 2.4% in January as a jump in services & miscellaneous goods (5.5% y/y) and healthcare (4.1%) as well as a less negative reading in the transport subindex (-1.2%) outweighed smaller price rises in the clothing & footwear (4.6%) and recreation & culture (2.5%) categories. We expect the headline rate to average 2.5% in 2025, down from 2.9% last year.
Kuwait: Decree issued to approve draft budget for FY2025/26. A decree for law 14 of 2025 was issued to approve the budget for FY2025/26, with no notable changes over the draft budget announced in January. (Report link.) Revenues are projected at KD18.2 billion (with an oil price assumption of $68/bbl) and expenditures at KD24.5 billion, leaving a deficit of KD6.3 billion (13% of GDP). Two features in the budget are worth highlighting again: (1) the 9% budget-on-budget (b/b) increase in non-oil revenues to a record high of KD2.9 billion, the majority of which is from a 12% b/b increase in “other revenues”, which includes proceeds from sales of goods and services, property income, and fines and penalties (the government has already moved to raise service fees and increase traffic penalties); and (2) the continued decline in budgeted capex (-1.6% b/b) to a historically low KD1.8 billion. That said, approval of the debt law, currently awaiting an Amiri Decree after being passed by the cabinet last week, could change the calculation somewhat, if fresh liquidity is directed towards capital projects as part of Kuwait’s Vision 2035. Looking ahead, we expect to see efforts to rationalize current spending and raise non-oil revenues continue, leading to potentially better budget outcomes as discussed in our February public finance report. (Report link)
US: Tariff news-flow ongoing and expectations of a better-than-feared April 2 announcement drive stock market rebound. In a new tariff-related development, President Trump threatened imposing 25% duties on the imports of any country that buys Venezuelan oil. In addition, he mentioned that sector-specific tariffs are still on the table, with auto ones coming “over the next few days” and adding that tariffs on lumber, semiconductors, and pharmaceutical drugs will be imposed, but without specifying a date. More importantly, regarding the “reciprocal tariffs” announcement that is scheduled for April 2, Trump mentioned yesterday that there might be “breaks” for a lot of countries. This was in line with news-flow since Friday, pointing out that the April 2 announcement may be better-than-feared in terms of the scope and size of the tariffs. This optimism fueled a rebound in the S&P 500 index, which recovered from steep intra-day losses on Friday and gained 1.8% yesterday.
US: Services drive the PMI higher, but manufacturing contracts and business confidence weakens further. The S&P Global Flash PMI Composite Index rose to a three-month high of 53.5 in March (51.6 in February) driven by the services index while the manufacturing one fell again below 50. The services index increased to a better-than-expected 54.3 (51.0 in February), a three-month high, with companies mentioning signs of improving customer demand supported by better weather than earlier in the year. The manufacturing index fell to a weaker-than-expected 49.8 (52.7 in February), a three-month low, on the back of drops in employment and factory production after the latter rose sharply in January and February. Companies reported fewer instances of sales being supported by the front-running of tariffs. Meanwhile, input price inflation, across both goods and services, increased at the fastest rate in nearly two years, mainly attributed to tariffs. Optimism about the year ahead dropped for a second straight month, to levels that are among the lowest in more than two years, often attributed to policy-related worries.
UK: Services drive the composite PMI to a six-month high despite very weak manufacturing. The S&P Global Flash PMI Composite Index rose to a six-month high of 52.0 in March (50.5 in February) driven by the services index while the manufacturing one dropped further below 50. The services index increased to a much better-than-expected 53.2 (51 in February), a seven-month high, supported by improvement in both sales and new orders with some companies mentioning a still-tentative improvement in demand, especially in the consumer sector. The manufacturing index fell to a weaker-than-expected 44.6 (46.9 in February), an 18-month low, on the back of drops in sales and new orders that are mostly linked to potential US tariffs and rising global economic uncertainty. Other details were not that encouraging with private sector employment falling for the sixth straight month and output price inflation remaining elevated with companies attributing that to forthcoming increases in insurance contributions and minimum wages. Moreover, the sub-index of future business activity remained close to its 25-month low seen in January.
Eurozone: Business activity remains positive in March. The flash PMI data showed the Composite PMI fell short of market expectations of 50.8 but improved from February’s 50.2 to 50.4 in March, marking the third consecutive month of modest expansion. Manufacturing activity also improved, rising for a third consecutive month to reach a 2-year high of 48.7, led by sustained output growth in Germany, likely linked to news of increased infrastructure and defense spending. Conversely, the service sector showed signs of stalling as the pace of expansion cooled to its lowest level since November, at 50.4 in March (down from 50.6 previously). The latest data puts GDP on track for a modest gain in Q1 though the conflicting sectoral narratives complicate the ECB’s monetary policy path, with markets still largely expecting another interest rate cut at the central bank’s April meeting.
Japan: Bank of Japan (BoJ) discussed further rate hikes in January meeting minutes. The released meeting minutes for January’s monetary policy meeting showed that BoJ board members were more open to further interest rate increases this year given the persistent inflationary pressures, supported by rising wages and broader moves by firms to pass higher personnel and distribution costs onto prices. The board also projected that core inflation (excl. fresh food) would remain within the 2.5-3.0% range in FY2024 and around 2.5% in FY2025, partly due to higher import prices resulting from yen depreciation. However, the bank emphasized that financial conditions remain largely accommodative given the negative interest rate, even after another rate hike, signaling that if the economic and price outlook is realized, additional tightening would be appropriate. One board member suggested that rates could reach around 1% by H2 FY2025 while others emphasized the importance of a gradual, data-dependent approach without pre-committing to a specific path.