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Daily Economic Update
31.08.2025Egypt: Central Bank cuts by 200 bp on the back of easing inflationary pressures. The Central Bank of Egypt’s (CBE) monetary policy committee (MPC) voted on Thursday to cut its policy rate by 200 basis points (bps), bringing the deposit policy rate to 22.00%. This move was expected by the market, against the backdrop of easing domestic and external pressures. The CBE highlighted that alongside softer domestic inflation, the stability of the EGP has created sufficient room for the CBE to resume monetary easing. Looking ahead, the CBE forecasts inflationary pressures to remain weaker than in the recent past, averaging 14-15% y/y in 2025, which leaves room for further cuts across the remaining 3 meetings.
Egypt: Macro indicators trending up, though imperative of structural reforms to reduce deficit and debt remains. Real GDP grew by 4.5% y/y in the fiscal year that ended June 2025 (FY2024/25), up from 2.4% y/y in the previous year and exceeding the targeted level of 4.2%. Also, the size and the duration of the public debt profile were much improved, with external debt falling by $1 billion in FY2024/25 to bring the public debt-to-GDP ratio down to 85.6% from 89.4% in the previous year and with the average maturity of domestic debt expanding to 1.6 years (at end-FY2024/25), up from 1.2 years previously. The improvements are expected to enable higher spending on health, education, social protection, and support for economic activity, while avoiding the imposition of new taxes during the current fiscal year. Moreover, Egypt recorded its highest-ever primary surplus of EGP629 billion (3.6% of GDP), up 80% y/y over the previous year. Despite these improvements, the overall budget deficit remained high at 7.4% of GDP in FY 2024/25, highlighting the need to lower the debt service portion of the budget. FDI inflows dropped by 78% y/y to normal levels of USD10 billion. This drop was expected after the ADQ’s $35 billion Ras El Hekma deal that boosted the FDI figure in FY2023/24.
US: Appeals court invalidates Trump’s ‘reciprocal’ tariffs but keeps them in place until mid-October; matter likely to go to Supreme Court now. In another major blow to the US administration, Trump’s ‘reciprocal’ tariffs imposed under an emergency power act (IEEPA) were judged illegal by the US Court of Appeals for the Federal Circuit, upholding the previous ruling by the Court of International Trade from May. But the court paused its ruling going into effect until 14 October. This will give time for the administration, if it wishes, to file an appeal with the US Supreme Court, which is very likely. However, sectoral tariffs, such as on metal or auto products, will not be affected as they were levied through a different legal mechanism. In case of a final legal setback, the Trump administration could still use separate legal means to introduce many other tariffs. Nonetheless, uncertainties about the ongoing tariff drama will persist in the meantime, and many hastily signed trade frameworks may be impacted as trading partners would want to wait for the final court outcome before implementing previously agreed or new concessions. Moreover, the Appeals court’s ruling (if ultimately upheld in the Supreme Court) may be applied retroactively, forcing the US government to refund already collected tariffs under the IEEPA. Trump and his team were already looking to exert pressure on court proceedings, with Trump saying a rollback of tariffs will be “a total disaster for the country” and Bessent, before the court’s decision, warned that revoking the tariffs will be a “dangerous diplomatic embarrassment.” We note that in the current Supreme Court, six justices were appointed by Republicans and the remaining three by Democrats. On the data front, GDP in Q2 grew stronger than previously estimated at 3.3% (annualized), rebounding from a drop of 0.5% in Q1 and versus the 3% preliminary estimate. Other than a reversal in net trade balance, a much faster than initially estimated rise in business investment and a slightly higher increase in consumer spending helped the economy post better growth in Q2. Finally, PCE inflation in July was steady at 2.6% y/y (0.2% m/m) but the core rate rose to a five-month high of 2.9% (0.3% m/m) from June’s 2.8%, in line with the consensus forecast.
China: August’s manufacturing PMI still in contraction despite some tariff relief. China’s official NBS manufacturing PMI edged up to 49.4 in August from 49.3 in July — still below the 50-point threshold that separates expansion from contraction. This was lower than market estimates of 49.5 and marks the fifth straight month of decline in manufacturing activity. The weaker than expected figure was likely due to the government’s efforts to ease cost competition, holding back production and offsetting the boost for manufacturers of the US’ extended 90-day trade truce. Also, the non-manufacturing PMI was up in August at 50.3 from 50.1 in July, in line with estimates and suggesting a moderate increase in services activity. Overall, The NBS general PMI of manufacturing and non-manufacturing was 50.5 in August, compared with 50.2 in July. That said, though, and despite a slight improvement in the general PMI for August, China’s economy is still under pressure due to persistently weak domestic demand, a cooling property sector, and ongoing uncertainty regarding the global trade backdrop.
Japan: Urban inflation slows on subsidies in August. Consumer price inflation in Tokyo slowed sharply to a 10-month low in August at 2.6% y/y from July’s 2.9% on government utility subsidies, which helped in the declines logged in the electricity (-6.5%) and gas (-5.9%) prices. Rice price growth also slowed, but to a still-high 67.9% y/y from 81.8% in July. Core inflation (excl. fresh food) also softened to 2.5% while the core-core measure, which excludes fresh food & energy, ticked down slightly to 3.0 %y/y from 3.1% in the previous month, suggesting that beyond the impact of government subsidies, inflation remained relatively unchanged. Meanwhile, the unemployment rate in July fell to its lowest level since December 2019, at 2.3%, with the number of unemployed declining by 80k to 1.64 million while the labor force shrank by 110k to 69.9 million. At the same time, the jobs to application ratio remained stable at 1.22 in July indicating tight labor market conditions, which is expected to keep the upward pressures on wages. While inflation has remained above the BoJ target for well over three years, the BoJ Governor, Kazuo Ueda, has stressed the need for prudence on further rate hikes to ensure price rises are driven by wage gains and robust domestic demand.