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Daily Economic Update
27.03.2025Kuwait: Debt law approved by Amiri decree. The much-anticipated debt law has been approved by Amiri decree. The new financial framework on financing and liquidity (Decree law no. 60 of 2025) will allow the government to issue debt up to a value of KD30 billion, equivalent to a debt ceiling of about 60% of (current year) GDP, over a fifty-year borrowing horizon. Financial instruments, sovereign bonds and sukuk, can now be issued with maturities of up to 50 years. The Minister of Finance and Minister of state for Economic Affairs and Investment, Noura Al-Fassam, remarked that the law will “grant Kuwait greater financial flexibility by allowing it to tap into local and international financial markets to enhance liquidity management…and part of the government’s efforts to enhance financial stability and support economic development in line with Kuwait Vision 2035”. The law will increase the options available to the government to finance current and future fiscal deficits beyond drawing down reserves at the General Reserve Fund, the government’s cashflow account. Moreover, the new law will facilitate the establishment of a sovereign yield reference curve and catalyze bond issuance and the debt markets more broadly going forward. Also, the new law is an important step in stimulating capital project financing avenues and Kuwait’s economic development plans as per the Vision 2035 strategy and should help in strengthening Kuwait’s sovereign credit rating.
US: Trump widens trade war with a blanket 25% tariff on auto imports. In line with prior threats, President Trump expanded his trade war, imposing a 25% tariff on imports of autos and some auto parts as well, effective April 3 and no later than May 3, respectively. The tariffs apply to imports from all countries, will be on top of any tariffs already in place, and with Trump describing them as permanent. However, auto imports covered by the USMCA, the trade agreement between the US, Canada and Mexico, would incur tariffs only on the value of their non-US content. White House officials mentioned that the auto tariffs would result in $100 billion of government revenue per annum. As per some reports, vehicle imports to the US stood at around $240 billion in 2024, representing close to 50% of the US auto market with Mexico, China, Japan followed by Canada and Germany as the largest exporters. Officials from impacted countries criticized the US administration’s move with the European Commission President Ursula von der Leyen saying that the EU will “protect its workers, businesses and consumers”, the Canadian Prime Minister describing the tariffs as a “direct attack” on people who work in the auto industry, and the Japanese Prime Minister saying that they would consider appropriate responses and that “all options are on the table”. As has been the case with news about tariff escalations, the stock market reacted negatively, with the S&P 500 dropping by 1.1% on Wednesday.
UK: Chancellor cuts spending to restore fiscal headroom as 2025 growth slashed in half. Chancellor Rachel Reeves, faced with weak economic growth and elevated borrowing costs, announced in the Spring budget statement a £14 billion budget recast by 2029-30 that will restore the fiscal headroom to £9.9 billion, equal to the headroom at the time of the 2024 Autumn budget. The £14 billion package is through £8.4 billion in cuts to welfare (£4.8 billion) and other day-to-day government spending (£3.6 billion), £3.4 billion through higher revenues related to planning reforms as well as shifts from current spending to capital spending, and £2.2 via lower tax avoidance. Still, the restored headroom is very low by historical standards, leading to risks of resorting to more aggressive tax-raising measures in the coming Autmn budget in October. Moreover, the cuts to welfare spending risk a backlash, especially since initiated by a Labor government, which traditionally are more attentive to such entitlements. On a positive note, the government plans to sell £299 billion worth of bonds in the coming fiscal year, slightly less than market expectations. This was welcomed by the bond market with the UK 10-year yield falling by around 6 bps yesterday. Separately, the Office of Budget Responsibility (OBR) published its latest economic forecasts, slashing 2025 GDP growth to 1% from 2%, but which was not surprising. In comparison, the Bank of England recently downgraded 2025 growth to 0.75% from 1.5%. However, in a relief for the Chancellor, the OBR upgraded GDP growth for each year through 2029, projecting the economy to be slightly bigger by 2029 compared with their October forecast.
UK: CPI inflation softens slightly more than expected in February. CPI inflation fell to 2.8% y/y in February, down from January’s 10-month high of 3%, coming slightly below consensus expectations (2.9%) but in-line with the Bank of England’s (BoE) forecasts. The softer inflation was driven by a lower annual increase in goods prices (to 0.8% from 1%), after a three-month acceleration. Meanwhile, services inflation was steady at 5% y/y, coming slightly below the BoE’s 5.1% forecast. The core rate also decreased to 3.5% from 3.7% in January, a touch below consensus expectations. The generally softer inflation print supports the BoE’s stance of continuing to gradually ease monetary policy in the remainder of 2025. However, the BoE projects headline inflation to increase again starting in Q2, reaching around 3.7% in Q3 driven by higher prices of energy and other regulated components, before gradually softening, hitting the 2% target only by the end of 2027.
