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Daily Economic Update
06.04.2025US: Trump’s reciprocal tariffs trigger market meltdown and increase US recession risks; Powell warns of higher inflation and slower growth. The Trump administration last week imposed a blanket 10% tariff on all trade partners (effective 5 April), while many countries were slapped with much higher so-called reciprocal tariffs. For example, the EU, China, Japan, and Vietnam will see significant 20%, 34%, 24% and 46% duties, respectively, to be effective from April 9. Canada and Mexico escaped such levies for now and would only face previously announced sectoral tariffs, with goods and components under existing free trade agreements (USMCA) remaining duty free. Though scope for negotiation remains, China has retaliated by slapping its own 34% tariffs on all US goods imports (effective April 10) and the EU is said to be considering countermeasures should further negotiations prove unsuccessful. Meanwhile, Fed chair Powell, acknowledging the elevated uncertainty in his speech, mentioned that tariff increases were “larger than expected” and could push inflation higher and hit growth and employment. He also cautioned that the effect of tariffs on inflation could be more persistent, a reversal from his previous thinking on their impact as being only transitory, but emphasized that the bank would wait to gain more clarity before adjusting monetary policy. Higher US inflation and global growth worries triggered panic selling in the US and world equity markets, with the S&P 500 sinking around 10% over Thursday and Friday (the worst two-day loss since March 2020) and UST 10Y bond yields dropping below 3.9% before paring losses to close at around 4% on Friday after Powell’s seemingly hawkish comments.
US: Latest mixed economic data already redundant amidst government policy upheavals. Non-farm payroll gains in March rose above forecast to 228K from a downwardly revised 117K in February. However, the unemployment rate unexpectedly increased to 4.2% (a four-month high) from 4.1%, with the participation rate rising to 62.5% from 62.4. Wage growth slowed on an annual basis to 3.8% y/y from 4% but increased on a monthly basis to 0.3% m/m from February’s 0.2%. Meanwhile, initial weekly jobless claims (w/e March 29) were relatively modest at 219K, but continuing claims (w/e March 22) climbed to 1.9mn, the highest since November 2021. Finally, services activity in March nearly stalled as the ISM PMI fell to a nine-month low of 50.8 from 53.5 in February as the business landscape took a hit amid Trump’s import tariff announcements. For now, such ‘rear-view’ economic data points are already taking a back seat as trade-related and other upcoming government policies (taxation and deregulation) are likely to disrupt current labor market dynamics and the overall operating environment over the coming months.
China: Government retaliates to US tariff imposition with 34% duties of its own on all US imports. China became one of the first countries to respond to President Trump’s ‘Liberation Day’ tariffs with countermeasures by imposing duties of 34% on all US imports. The move comes after the US announced a 34% increase in China’s tariff rate last week, in addition to two 10% increases that were imposed earlier. China has also vowed to take “resolute measures” to protect its national interests. In addition, China has added 11 US companies to its “unreliable entity” list, restricted exports of seven types of rare earths, and imposed export controls on 16 US firms, among other measures.
GCC: Regional exporters face blanket 10% US trade tariffs, though energy exempt. Exports from GCC countries to the US are now subject to tariffs of 10%, in accordance with the Trump Administration’s new ‘baseline’ tariffs applicable globally from 5 April. Oil and energy imports to the US, however, will be exempt, which will minimize the adverse effect of this round of tariffs on GCC countries—only Saudi Arabia continues to export significant volumes of crude to the US. GCC countries have been spared the higher ‘reciprocal’ rates being imposed on some of the US’s largest trading partners and indeed on other MENA countries including Iraq (39%), Algeria (30%) and Jordan (20%) by virtue of the fact that all six GCC countries have trade deficits with the US, with the balance most negative for the UAE at more than $19 billion (2024). That said, the UAE, Bahrain and Oman are facing 25% tariffs on their aluminium and steel exports to the US. The UAE was the second largest exporter of aluminium to the US in 2024 and Bahrain the fifth largest.
Kuwait: Non-oil private sector activity accelerates in March. According to the latest S&P Global Purchasing Managers’ Index (PMI), non-oil private sector activity in Kuwait accelerated in March, reaching 52.3 from 51.6 in February, and bucking the trend of slower growth usually seen in the holy month of Ramadan. March was the seventh consecutive month of expanding business activity, supported by a marked increase in output and new orders and especially new export orders. Firms cited improved customer demand responding to new product offerings and competitive pricing. Payroll numbers increased, but the gain was marginal, and firms continued to report that staffing levels were insufficient to keep pace with orders, leading to a sixth consecutive month of increasing backlogs of work. Output prices gained, but again, it was modest. Firms remained strongly optimistic about future growth prospects.
UAE: Non-oil growth remains robust in March. The S&P Global Purchasing Managers’ Index (PMI) softened to 54.0 in March from 55.0 in the previous month, marking the slowest pace of expansion since September 2024. Output growth eased to 59.6 in March while new orders growth slowed to its slowest pace in five months. Moreover, employment growth continued to slow, nearing the neutral benchmark at 50.2. Despite this, firms exhibited resilience by increasing their input purchases to manage growing work backlogs at the fastest rate since July 2019. Input cost increases remained modest, shaped by a mix of higher material costs and easing transportation expenses, while output prices continued to increase for the third straight month, reflecting firms’ efforts to preserve their profit margins. Business sentiment remained optimistic over the next twelve months, buoyed by strong project pipelines and continued national development initiatives. Similarly, in Dubai, the PMI edged down to 53.2, accompanied by a rare contraction in staffing levels despite ongoing growth in new business.
Egypt: PMI contracts in March to 49.2. In March 2025, Egypt's non-oil private sector entered contraction territory, with the PMI dropping from 50.1 in February to 49.2, signaling a mild deterioration in business activity. This decline was primarily driven by weaker demand, with both local and international new orders weakening, causing firms to scale back operations, purchases, and staffing. However, the construction sector stood out, experiencing robust growth in output and new work. Inflationary pressures eased, with input costs rising at the slowest pace in nearly five years, partly due to a stabilizing Egyptian pound. As a result, selling price rises were modest, continuing a trend of lower price hikes. Businesses' outlook for the future was subdued, with output expectations falling to one of the lowest levels in the series’ history, reflecting cautious sentiment about economic conditions in the short term.