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Daily Economic Update
25.05.2025Egypt: Central bank cuts interest rates cut by 100 bps. The Central Bank of Egypt on Thursday lowered benchmark interest rates for the second time in as many months as the authorities look to support economic growth amid broad disinflation. The discount, overnight deposit and lending rates were cut by 100 bps to 24.5%, 24.0% and 25.0%, respectively, a reduction that came in below the 175 bps that analysts had been expecting in a Reuters poll. In its statement, the Monetary Policy Committee (MPC) said that the cut aimed to support economic growth amid an easing inflation outlook, though economic risks, not least global trade protectionism, regional conflicts and “higher-than-anticipated pass-through of fiscal consolidation to domestic prices”, called for vigilance and a cautious approach to monetary policy easing. The MPC stated that GDP growth is estimated to have reached 5.0% in Q1 2025 from 4.3% in Q4 2024, while inflation, which ticked up to 13.9% in April, is nevertheless on a downward trajectory, having fallen substantially over the last year. That said, forthcoming subsidy cuts, as part of planned fiscal consolidation efforts, and sticky non-food inflation, may slow the disinflationary trend. This may preclude the authorities from cutting rates at the next rate-setting meeting in July.
US: Trump renews tariff escalation, threatens to hit duties of 50% on the EU and 25% on smartphones. President Trump, reigniting tariff escalation, threatened to impose 50% duties on imports from the EU (US’s largest merchandise trade partner) beginning June 1, seeing no material progress in the ongoing talks, and stated he was “not looking for a deal” with them. Currently, EU goods are subject to a 10% tariff given the 90-day pause on ‘Liberation Day’s 20% that ends in July. He also proposed to hit smartphone imports with a 25% tariff by end-June, apparently to head off a plan by Apple to move iPhone production away from China to India rather than to the US as the president had hoped. While discussions are continuing with the EU, Treasury Secretary Bessent mentioned that most countries are negotiating “in very good faith” but not the EU. The EU had previously postponed any countermeasures to the US-imposed tariffs, although is working in parallel on a retaliation strategy. On a more market-friendly note, Bessent also stated that several large trade deals would likely be announced over the coming weeks as many “Asian countries have come with very good deals.” US financial markets sold off sharply on Friday after Trump’s comments, but later pared losses, with the S&P 500 closing down 0.7% d/d, yields on UST 10Y continuing to hover around 4.5% and the USD falling. Meanwhile, business activity, based on the S&P Global Flash PMI, unexpectedly strengthened in May, with the composite index recovering to 52.1 from April’s 19-month low of 50.6, with improvements seen across manufacturing (52.3 versus April’s 50.2) and services (52.3 from 50.8) as firms looked to front-run tariffs. Business confidence also improved partially following some tariff pauses and on a better economic outlook but remained subdued overall and below the 2024 average. However, the survey’s other details were more downbeat amid ongoing tariff worries, with weakening export demand, falling employment and sharply accelerating price pressures at rates not seen since August 2022. Finally, on Thursday, the House of Representatives narrowly (215-214 votes) passed Trump’s tax cut bill, which would extend soon-to-expire tax cut provisions and provide newer/larger tax breaks as well as employ only minor offsets, such as accelerated phaseouts of clean energy incentives and an early imposition of work requirements under the current Medicaid benefits mechanism among others. It would also raise the debt ceiling by $4 trillion. The bill is expected to increase the fiscal deficit by $3-5 trillion over the next 10 years, worsening an already unsustainable debt trajectory path. The bill will now move to the Senate, which would likely make some amendments before returning it to the House to agree on a common bill.
Europe: “Ready to defend interests” against Trump tariff threats while Eurozone business activity weakens in May. Responding to Trump’s tariff threat on its goods, the European Commissioner for Trade stated that the EU is “ready to defend our interests”, raising the possibility of reciprocal tariffs if the US moves forward with its plans. Elsewhere, the Eurozone’s composite PMI figure entered contraction territory for the first time in 2025, dropping to 49.5 in May from 50.4 in April, which is well below consensus estimates (50.7). The reading is a turnaround from March when activity expanded at the fastest pace in nine months (50.9). Similarly, the services PMI also declined to 48.9 in May from 50.1 in April. Manufacturing, however, surprised with a slight uptick to 49.7 from 49.0 in April (49.3 consensus).
UK: Business activity continues to be weak, while government finances deteriorate further. The S&P Global Flash composite PMI in May remained below the 50-mark for the second consecutive month, but the pace of weakening eased to 49.4 from April’s 48.5. While manufacturing (at 45.1) continued to shrink for an eighth straight month, services activity rebounded from April’s 27-month low to an uninspiring 50.2. New orders shrank at an accelerated pace on rising global trade uncertainty, but business optimism improved to a 5-month high as firms cited stable financial conditions supporting the spending outlook cautiously in the services sector. Employment slumped further but output price pressures moderated despite rising input prices amid higher payroll costs and utility charges. Meanwhile, the fiscal deficit in April 2025 widened by more than had been expected, to £20.2bn versus £19.2bn in April 2024, the fourth-highest April deficit on record. A rise in government revenues following the hike in national insurance contributions (effective April 2025) was more than offset by increased public spending. Accordingly, public sector net debt to GDP inched up to 95.5% in April (near its highest level since the 1960s) from a downwardly revised 95.1% at the end of March. The UK government, in its spring budget update, had reduced some welfare and other outlays to meet the self-imposed rule of balancing current spending and tax revenues by FY2029/30. As seen in the latest PMI data, the growth outlook remains subdued, and thus, the government’s finances could come under further pressure, leading to fresh fiscal tightening.
Japan: Core inflation climbs to a more than two-year high of 3.5% in April. Inflation was unchanged in April at 3.6% y/y, staying above the Bank of Japan’s (BoJ) target of 2% for more than three years. Meanwhile, core inflation (excl. fresh food) accelerated further, exceeding March’s rate of 3.2% to 3.5%, its highest level since January 2023. The core-core Consumer Price Index, which excludes both fresh food and energy, also accelerated to 3.0%, up from 2.9% in March, indicating persistent demand-driven price pressures. The rise in inflationary pressures came amid a continuous increase in rice prices, with cereals inflation rising to 27.4% y/y, and reduced government subsidies on energy (9.3% y/y versus 6.3% in March). The overall rise in core and core-core inflation keeps the BoJ under pressure to consider further monetary tightening despite the quarterly GDP contraction seen in Q1, suggesting that if inflation remains elevated and the economy shows resilience the bank may proceed with additional interest rate hikes by October 2025.