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Daily Economic Update
10.06.2025Saudi Arabia: GDP growth remained robust in Q1 on stronger private sector growth. GDP growth eased to 3.4% y/y in Q1 2025, from 4.4% in the previous quarter, though beating the flash estimate of 2.7% released in May by the Saudi General Authority for Statistics. The softer growth came mainly due to the contraction in oil activities, which saw a decline of -0.5% y/y, a reversal on the 3.5% expansion in Q4 2024. On the other hand, growth in the non-oil private sector accelerated for the second straight quarter to 4.9% due to stronger growth in private consumption (4.5% versus 3.6% in Q4 2024) and gross fixed capital formation (8.4% versus 6.6%). Moreover, the government sector logged its highest yearly growth since Q2 2024, at 3.2% due to rebounds in consumption (5.2% versus -6.9%) and capital spending (10.1% versus -43%). On a sectoral level, stronger non-oil growth came mainly from manufacturing (excl. petroleum refining) at 3.6% (versus 2.5% in Q4), “wholesale & retail trade” (8.4% versus 7.1%), and “transport, storage & communications” (6% versus 3.8%).
Oil: Prices rally amid US-China trade talk optimism and near-term supply tightness. More upbeat sentiment about the prospects of a US-China trade deal have helped oil prices in recent days, with international benchmark Brent currently on a 3-consecutive day run of gains, having closed up 4% w/w on Friday at $66.5/bbl on last week’s stronger-than-expected US jobs data. ‘Risk-on’ sentiment in the oil markets looks to have returned to some degree amid optimism that ongoing China and US trade talks in London will yield something positive for global economic prospects after a difficult few months. Moreover, according to a range of indicators including production, refinery throughputs, tanker-tracking and stockpiling assessed by market watchers, the oil market is looking a little tighter than expected, heading into the traditionally most robust period of the year for oil consumption. On production, while OPEC-8 continues to ramp up production at an accelerated rate, delivered supply has lagged. Traders have therefore been readjusting their most bearish assessments and pulling back on their more speculative ‘shorts’.
US: Trade talks with China resume, while consumer inflation expectations moderate. The US and China trade delegations started their second round of negotiations yesterday amid frictions related to China’s continued curbs on exports of rare earth minerals and other issues, after the first round of talks in which both countries had trimmed their respective reciprocal duties. The talks will continue today, and both are seeking concessions from each other, with the US aiming to have relaxed rare earth mineral flows from China and the latter looking for eased US regulations on shipments of some semiconductor and other goods. President Trump stated yesterday that he was “only getting good reports” from the talks but emphasized that “China’s not easy.” Meanwhile, consumer inflation expectations, according to a New York Fed survey, moderated after some trade deals, with one-year and five-year inflation outlooks falling to 3.2% and 2.6% in May from April’s 3.6% and 2.7%, respectively. Consumers’ views on job market conditions and household finances also improved slightly from the previous month but remained weak overall versus the post presidential election optimism. Finally, the job market seems to be holding relatively well amid tariff and other policy chaos, with data at the end of last week showing non-farm payrolls rising by an above-consensus 139K in May after a 147K increase in April, with a stable unemployment rate of 4.2%. However, dampening the mood, March and April job gains were revised down heavily by a combined 95k. Looking ahead, a more stable government policy outlook would be needed to help preserve the durability of this robustness in the US labor market.
China: May’s trade data disappoints as shipments to US tank while deflationary pressures persist. China’s export growth in May eased to a three-month low of 4.8% y/y (below the 5% forecast) from April’s 8.1%, with US-bound shipments declining by 34% y/y (-13% m/m) as the impact to US’s steep tariffs became more visible, while the growth in exports to other countries remained elevated (11.4% y/y). Following a reduction in US duties on Chinese goods in early May but pending the outcome of second round of talks, tariff front-running could help reverse some fall in shipments to the US over the coming months. Imports continued to drop, accelerating their fall to 3.4% y/y after a decline of 0.9% in April, suggesting a weak domestic demand outlook. In more signs of muted local consumption, CPI inflation in May remained in deflation territory, at -0.1% y/y (same as April) with PPI inflation slumping at a faster rate of 3.3% versus a fall of 2.7% in April.
Eurozone: ECB cuts interest rates, signals loosening ‘nearly concluded’. The European Central Bank, as expected, cut interest rates by 25bps last Thursday, taking the benchmark deposit rate down to 2.0% from a peak of 4.0% in 2024. However, bank president Lagarde signaled that the rate cutting cycle was now ‘nearly concluded’, with markets expecting perhaps only one more cut later this year assuming no new escalation of trade tensions with the US or a further steep drop in inflation, which fell to just 1.9% in May. The ECB lowered its forecast for inflation by 0.3% points both this year (to 2.0%, in line with the medium-term target) and next (to 1.6%), reflecting lower oil prices and a strengthening of the euro notably versus the US dollar. The bank’s economic growth forecasts were unchanged from Q1 at a modest 0.9% for this year and 1.1% in 2026, amid ongoing tariff-related uncertainties. Lagarde also brushed off speculation that she would leave the ECB to join the World Economic Forum, stating that she is “determined to complete my term. Period.”
Japan: BoJ governor’s dovish remarks weakens the yen further. BoJ governor Kazuo Ueda reaffirmed the central bank’s commitment to achieve its inflation target while toning down his comments about future possible rate hikes, which helped in weakening the yen further (currently at JPY144.6/$1). At the same time, the governor hinted that financial conditions remain largely accommodative with the policy rate at 0.5%, implying that the BoJ has limited capacity to stimulate the economy while emphasizing the need to raise rates including to preserve future policy flexibility. Meanwhile, prime minister Shigeru Ishiba outlined a bold economic agenda ahead of the upcoming upper house elections, which includes boosting average nominal wages by 50% and expanding nominal GDP to JPY1 quadrillion (about $6.9 trillion) by 2040. The government is also looking to stem the rising burden on households through cash handouts and stabilizing rice prices in the market.