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Daily Economic Update

Daily Economic Update

03.02.2025

Kuwait: Cabinet approves the FY25/26 budget, with a wider deficit of KD6.3 billion expected. The cabinet approved the FY 2025/2026 budget pending the Amir’s final endorsement. Revenues are expected to ease by 3.6% budget-on-budget (b/b) to KD18.2 billion due expectations of reduced oil receipts (-5.7% b/b to KD15.3 billion) on a lower assumed oil price of $68/bbl (down from $70 in the previous budget) and slightly lower crude oil production of 2.50 mb/d  (from 2.55 mb/d). Non-oil revenues are projected to increase by 9% b/b to KD 2.9 billion, helped by new revenue measures including the corporate income tax and higher traffic fees. Expenditures are estimated at KD24.5 billion, little changed from last year’s budget, with slightly higher outlays on employee compensation (+1.6% b/b) offset by minor declines in subsidies, other expenses and capital expenditures. Spending on the latter, estimated at KD2.24 billion (-2.2% b/b), while slated to fall for the fifth consecutive budget post-pandemic, may actually rise on the current year’s (FY24/25) outlay once the accounts are finalized given the historical tendency to underspend in relation to the budgeted amount and in view of the fact that the government plans to accelerate key development projects. The budget projects a wider fiscal deficit of KD6.3 billion (13% of GDP) from KD5.6 billion in the previous budget.

                      

Chart 1: Kuwait budget
 
Source: MOF, NBK estimates 

 

 
Chart 2: Oil prices
($/bbl)
Source: Haver

Oil: Prices declined last week on the US tariff announcement. Brent futures fell 2.2% w/w to settle at $76.8/bbl on Friday (+2.8% ytd), driven by Trump’s 25% tariff consideration on Canada and Mexico, with Canadian crude facing a lower 10% tariff as the prospect of trade wars dampening economic growth weighed on market sentiment. The US imported 6.5 mb/d of crude in 2023, 71% of which was sourced from Canada and Mexico, according to the Energy Information Administration’s (EIA) imports data. Retaliatory tariffs are therefore likely to increase fuel prices in the US, reigniting inflationary concerns and setting the path for elevated interest rates to prevail for longer. Weekly EIA data reinforced the bearish sentiment, revealing a larger-than-expected 3.5 mb w/w buildup in commercial crude inventories in the week ending January 24. Meanwhile, the market will be focused on OPEC’s Joint Ministerial Monitoring Committee (JMMC) meeting set to be held later today, with the consensus view that the producer alliance will stick to its current supply unwinding schedule that commences in April 2025 rather than opt for another delay. 

Japan: In its January meeting, the BoJ’s board discussed the weak yen and the tariffs’ impact. The Bank of Japan’s (BoJ) summary of opinions for its January meeting showed its board members weighing in on upside inflationary risks related to the recent weakness of the yen and the negative impact on households and firms of rising costs. Members also discussed rising uncertainties related to the impact of the US administration’s trade policies on the US economic outlook, projecting upside pressures on US inflation as trade frictions deepen, possibly triggering stagflation. Some members reiterated that economic activity and prices are on track with forecasts despite the rising upside risks to prices, which could push the BoJ to continue increasing rates in a gradual and timely manner. However, there were little hints related to how high the BoJ should raise interest rates.

UK: Chancellor outlines growth plans including infrastructure spending, reforms, and deregulation. Chancellor Reeves, in a speech last week, vowing to deliver faster growth, outlined the government’s growth agenda, which included constructing a politically-controversial third runway at Heathrow airport, resuming trade talks with India, improving ties with the EU, strengthening those with the US, and creating a “European Silicon Valley”, which will see the establishment of a ‘growth corridor’ between the Oxford and Cambridge centers of learning and excellence. The Chancellor also intends to deregulate pensions to allow pension schemes to invest in domestic assets. The UK economy has seen its prospects falter in recent months, especially after the government imposed in its Autumn budget higher employee insurance contribution burdens on businesses. The financial markets’ reaction was relatively muted as investors likely see such initiatives as insufficient to meaningfully lift the growth trajectory. On the data front, UK house prices, according to Nationwide, rose by a decent 4.1% y/y in January, though slower than the 4.7% increase in December as affordability continues to be stretched.

Global: Reaction to Trump’s tariffs, US jobs data, and BoE’s rate decision key matters this week. The global reaction to President Trump’s tariff measures, retaliation by affected nations, possible further escalation by Trump, and most-importantly, the markets’ reaction, will be the key matters to monitor this week. Asian stock markets and futures on the S&P500 as well as European equities are down sharply at the opening of trading this Monday morning, while the US dollar index is up by a wide margin. In terms of data releases, in the US, the January non-farm payroll report is due on Friday, with the consensus forecasting softer 170K job gains, down from a blowout 256K in December, but a steady unemployment rate of 4.1%. The annual revisions to payroll data for the 12-month period through March 2024 will also be published, showing a weaker growth in jobs than currently reported (provisional data in August showed around 800K fewer job gains over that period). The January ISM manufacturing (due today) and services PMI (due Wednesday) are seen slightly improving to 49.5 and 54.3, respectively. In the Eurozone, flash inflation estimates for January will be released later today with expectations at 2.5% y/y compared with 2.4% in December for the headline, but a slightly softer core rate (2.6% from 2.7%). Meanwhile, retail sales for December are due on Thursday with consensus expectations pointing to a 0.2% m/m increase. In the UK, the Bank of England’s MPC interest rate decision is due on Thursday with the street expecting a 25 bps cut in the bank rate to 4.5%. Markets will also scrutinize any forward guidance amid the weakening economy and renewed price pressures as well as the bank’s updated economic projections. Finally in Japan, household spending data for December, a leading indicator for private consumption, will be released on Friday, with consensus expectations pointing to a small increase of 0.2% y/y, up from a 0.4% decline in November, confirming the BoJ’s view of a slow private consumption recovery.   

 

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