Daily Economic Update

US: Reigniting trade war fears, Trump to impose 100% additional tariffs on China in retaliation of its new rare-earth measures, markets plunge. After China imposed new curbs on flows of rare earth minerals and magnets produced using Chinese raw materials or technology starting November 8, President Trump slapped 100% additional tariffs on imports from China as of November 1, or even sooner pending actions by China. He also threatened to impose export controls on some US goods, including airplane parts, as well as critical software to China. Initially, he suggested cancelling his upcoming meeting with Chinese President Xi, though left the door open, saying “I’m going to be there regardless, so I assume we might have it.” Trump and Xi are expected to meet during the October 31-November 1 Asia-Pacific Economic Cooperation summit in South Korea, which the market saw as an opportunity to iron out the remaining differences between two countries on trade and other matters. China defended its new export controls as “legitimate” under international law and that “these controls do not constitute export bans” adding that “applications that meet the requirements will be approved”. In a rather conciliatory tone, an official statement mentioned that “China has fully assessed the potential impact of these measures on the supply chain and is confident that the impact will be very limited.” Fears of a renewed trade war triggered a market meltdown on Friday, with global equities tanking, yields on UST bonds falling, gold rising, the US dollar retreating, and oil prices declining. Pending the Supreme Court ruling on reciprocal tariffs, peak trade uncertainty seemed to have subsided, but such fresh developments suggest that the trade situation continues to be fluid. Still, there remains ample room for discussions to take place before these curbs come into effect. Separately, the US administration started a ‘Reduction in Force’ exercise, permanently terminating several thousands of federal workers during the ongoing government shutdown as threatened previously. Amid stalling job increases, these firings should further weaken the already fragile job market. When the Bureau of Labor Statistics (BLS) resumes releasing job reports (once the government reopens), given termination of these federal employees along with previously undertaken DOGE-related voluntary retirements and resignations that became effective October 1, unemployment could spike. All this implies that uncertainty about the US economic growth outlook is again rising, having previously started to recede. Finally, the BLS announced that it will release the September CPI report on October 24 (Friday), even if the shutdown continues; the report was originally scheduled to be released later this week. 

Eurozone: Macron reappoints Lecornu as Prime Minister amid fiscal uncertainty and political resistance. French President Emmanuel Macron reappointed Sébastien Lecornu as Prime Minister on Friday, days after his resignation. The decision, aimed at resolving France’s deepening political crisis, drew sharp criticism from opposition parties, many of which have pledged to censure the new government. Lecornu urged political factions to put an end to the "ridiculous spectacle" and cooperate ahead of Monday’s budget deadline. While details of the draft remain undisclosed, he previously stated that the 2026 deficit should fall between 4.7% and 5% of GDP – above his predecessor’s 4.6% target but below the 5.4% forecast for 2025. The reappointment reflects Macron’s efforts to restore stability amid fiscal and political uncertainty. French bond markets responded positively on Friday, with the 10-year and 30-year yields falling further to end the week around 10 bps lower than on Monday. 

Egypt: S&P upgrades Egypt’s credit rating for the first time in seven years, while Fitch affirms its rating.  S&P Global Ratings upgraded Egypt’s long-term credit rating from B- to B with a stable outlook, marking the country’s first upgrade in seven years. Meanwhile, Fitch Ratings affirmed its rating at B with a stable outlook, bringing both agencies into alignment. Moody’s, however, still rates Egypt at Caa1, two notches below S&P and Fitch. The upgrade reflects growing international confidence in Egypt’s fiscal and structural reform agenda, which has been gradually improving macroeconomic fundamentals and investor sentiment. Both agencies highlighted a number of key factors behind their decisions: a primary budget surplus of 3.6% of GDP in FY24/25, a decline in public debt ratios, greater exchange rate flexibility, a narrower current account deficit, higher FDI inflows and record-high foreign reserves, stronger growth prospects, with GDP expected to expand 4.4% in 2025, up from 2.4% in 2024, a 70% increase in private sector investment and a 35% rise in tax revenues, supported by recent tax reforms. S&P noted that the stable outlook reflects improving growth dynamics and a stronger external position, balanced against still-high debt levels and fiscal pressures. It signaled that a faster-than-expected decline in debt ratios could trigger a further upgrade in the future.

Saudi Arabia: Non-oil industrial production remained robust in July. Industrial production grew by 7.1% y/y in July, easing from the series-high growth of 7.6% in June, driven by a rebound in oil activities growth (8.3%) in line with the ongoing unwinding of prior oil production cuts. Meanwhile, growth in non-oil activities accelerated to 4.4% y/y (from 3.2% in June),  supported by a robust expansion in manufacturing (excluding refining), led by chemicals and chemical products (8.6%) and non-metallic products (11.4%), which outweighed the continued contraction in basic metals (-12.9%) and furniture (-11.5%) manufacturing. Electricity, gas, steam and air conditioning supply, as well as water supply and waste management activity growth was strong at 8.7% and 6% respectively. The strong growth in industrial production is consistent with the continued growth of the non-oil economy and reflects the Kingdom’s ongoing push for industrial diversification under Vision 2030.

Chart 1: Saudi Arabia industrial production index (% y/y) Source: GASTAT

UAE: Dubai consumer inflation accelerates in September amid easing transport deflation. Consumer price inflation accelerated to 2.9% y/y in September from 2.4% in August while month-on-month prices rose by 0.44% m/m, the highest rate since February. This increase came as transport prices saw slower deflation of -0.9% y/y compared to a sharper -3.5% y/y drop in the previous month. In addition, food & beverage prices rebounded, shifting from a contraction of -0.4% y/y in August to a modest expansion of 0.2% in September. Meanwhile, the growth in housing and utility costs, the largest component of the CPI basket, continued to decelerate for the third consecutive month, registering a 5.8% y/y increase in September, down from 6.1% in August. Inflation in Dubai remains moderate though higher than in many other parts of the Gulf; we have a full-year forecast for 2025 of 2.8%.

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