Daily Economic Update

Egypt: Acting CBE Governor Abdallah’s mandate renewed amid improving investor sentiment, business conditions. President Abdel Fattah El-Sisi has renewed Hassan Abdallah’s mandate as Acting Governor of the Central Bank of Egypt (CBE) for a fourth consecutive year, rather than being given a full four-year term. This decision comes at a pivotal moment for Egypt’s economy, which has entered an easing cycle following cumulative interest rate cuts of 325bps in H1 2025. As of today, the Egyptian pound has also appreciated by 4.6% versus the US dollar since mid-June when it reached its peak of EGP 50.75/$1, offering some relief to the business community. El-Sisi met with Abdallah earlier this year to review efforts aimed at curbing inflation and strengthening foreign exchange reserves, which surged to a record high of $49 billion in July. Abdallah now faces the challenge of safeguarding external stability amid risks to the current account, ranging from reduced Suez Canal revenues due to geopolitical tensions in the Red Sea to rising energy import costs. Investor sentiment, however, has shown signs of improvement, with Egypt’s five-year credit default swaps (CDS) falling to 435bps, the lowest in four years, reflecting optimism over the stronger pound and expanding foreign currency inflows. While Egyptian CDS levels remain elevated compared to peer emerging markets, the positive trajectory could pave the way for more favorable financing conditions, particularly if Cairo opts to issue new international bonds. Analysts also anticipate further monetary easing in the remaining four Monetary Policy Committee meetings of 2025, a prospect that could bolster domestic investment and industrial growth.

Kuwait: Ministry of finance suspends decision to hike land rents. The Ministry of Finance issued a decision to suspend the recent amendments to decision 40 of 2016 concerning the rents charged for the use of public land and the related administrative fees. The amendments involved a comprehensive increase in public land rents (for details see here) as part of ongoing efforts to expand public revenues amid tighter liquidity and recurring fiscal deficits, following similar revisions in 2022.  We estimate approximately KD 80 million in lost potential income in the current fiscal year, given that property income was estimated at KD 82 million in the FY2024/25 budget (around 4% of non-oil revenues), and that the government expected double the income from the higher rents and relevant fees. Media sources cited significant public criticism regarding the severity of the rent hikes (many multiples), especially those pertaining to waterfront land and cooperative supermarkets and shops, leading to the suspension of the decision for reconsideration and further study.

US: Housing construction activity mixed in July. Residential construction indicators came in mixed in July as housing starts rose to a five-month high, up 5.2% m/m after posting a solid 5.9% rise in June, led by typically volatile multifamily (apartment units) starts. However, building permits (a gauge of future construction) fell to the lowest since June 2020 (-2.8% m/m), signaling a weak pipeline of new residential units. Though mortgage rates have come down from the recent peak of almost 8% (30Y fixed) in October 2023 to 6.67% now, they remain significantly elevated versus pre-Covid levels, stretching household budgets and contributing to softer housing construction activity. Coupled with a loosening labor market and an ongoing uncertain economic environment amid evolving government policies, residential investment may remain a drag on overall economic growth over the coming period after negative contributions in four of the past five quarters.  

Japan: Demand for super-long government bonds weakens on fiscal concerns. Tuesday’s auction for 20-year government bonds saw weaker demand with the bid-to-cover ratio coming at 3.09 compared with last July’s auction (3.15) and the 12-month average (3.24). Slower demand reflected lower investor sentiment following the ruling coalition’s election setback and speculations over new leadership, underscoring caution toward super-long debt amid concerns over fiscal expansion and waning Bank of Japan (BoJ) support. Moreover, the US Treasury Secretary has sharply criticized the BoJ last week as being “behind the curve” on inflation, fueling speculation of imminent tightening during the current year. With super-long bonds underperforming and a weak yen (currently at JPY147.6/$1) investors are focusing on the BoJ’s next policy steps with the markets assigning higher possibility of a rate hike before year-end. Meanwhile, the trade balance of goods for July logged a narrower deficit in July of JPY118 billion, down from a larger JPY628 billion in July 2024, mainly on the decline in imports by 7.5% y/y in July. Imports of mineral fuels and electrical machinery, which constitute more than a third of Japan’s imports fell by -21% y/y and -11.7%, respectively. On the other hand, exports witnessed a softer decline of 2.6% y/y on lower exports of motor vehicles (-11.5%) and manufactured goods (-10%). Exports to the US tumbled by -11.4%, extending a four-month slide due to weaker shipments of cars and auto parts. 

China: PBoC keeps rates constant in August. As expected, the People’s Bank of China (PBoC) left interest rates on hold for the third month in a row today, keeping the one-year loan prime rate (LPR) at 3.0% and the five-year LPR – the benchmark for mortgage rates – at 3.5%. The no-change decision comes shortly after the country reported weaker-than-expected retail sales (3.7% y/y) and industrial production (5.7% y/y) increases in July, possibly opening the door for rate cuts before the end of the year. Conversely, the country’s GDP figures (5.4% y/y in Q1 and 5.2% y/y in Q2) leave it on track to achieve its “around 5%” growth target for the year. The central bank did pledge an “appropriately loose” monetary policy in 2025, leading the market to predict at least one additional rate cut before the end of the year.

Download Full Report >