Daily Economic Update

US: Services activity nearly stagnates with higher prices and lower employment; Trump to set pharma and semiconductor tariffs soon.  The ISM services PMI unexpectedly weakened to a near flat line reading of 50.1 in July from 50.8 in June. Employment fell at an accelerated pace (to 46.4 from 47.2), now below 50 for four months out of the past five, indicating further weakening in the labor market. Price pressures intensified, with the measure rising to 69.9 from 67.5 in June, its highest since October 2022, fueling worries about increasing signs of ‘stagflation’ amid steep tariffs and stalling economic momentum. Meanwhile, the US merchandise trade deficit in June narrowed (-8% m/m) to its lowest level since March 2024 as imports recorded a continued drop (-4% m/m), now down 23% since they peaked in March. Several large trading partners saw shipments to the US fall, led by the EU (-19% m/m), China (-8%), and Mexico (-3%), but imports from Vietnam (+11%) and Taiwan (+3%) rose. The earlier trend of imports front running tariff implementation has continued to unwind, helping the goods trade deficit narrow in recent months. Despite the US having struck trade agreements with many of its key partners, the lack of clarity on their actual roll out and stalling progress on talks with others could keep the import trajectory volatile over the coming months. Finally, President Trump mentioned that he would announce tariffs on pharma and semiconductor products “within the next week or so,” with levies on pharma starting with a small rate but rising to 150% in one to one-and-a-half years and then eventually increasing to 250%. He also vowed to raise tariffs on India “substantially” in the next 24 hours from the current 25% due to its sustained buying of Russian energy products. We note that the legality of all Trump’s reciprocal country-specific tariffs remains in front of the courts, which are expected to announce verdicts in the coming weeks. Amid the weak economic data and rising concerns about the health of the economy, US equity markets partly reversed their gains from Monday, with S&P 500 falling 0.5% yesterday.

Chart 1: US ISM services PMI (index, >50=growth) Source: LSEG Workspace

Chart 2: Oil prices (index, >50=growth) Source: S&P Global, Haver

Saudi Arabia: IMF cites economic resilience and ample buffers as strengths. The IMF released its latest Article IV report on Saudi Arabia, which confirmed the Kingdom’s continued progress towards economic diversification and its economic resilience to external shocks and lower oil prices. The report stated that the non-oil economy continued to expand at a solid pace, inflation remained contained, and unemployment declined to a record low. Non-oil growth is expected to remain solid over the medium term at an average rate of 3.5%, supported by robust domestic demand, the hosting of international events, and continued investment in Vision 2030 diversification projects. The positive outlook is also supported by good progress on economic reforms, strong buffers, and favorable economic policies. Meanwhile, the gradual unwinding of OPEC+ production cuts should lift overall real GDP growth to a projected 3.9% by 2026. The ongoing fiscal and current account deficits were deemed acceptable and appropriate for the time being given the need for a countercyclical approach to spending to support growth amid lower oil prices. Moreover, risks from the twin deficits are mitigated by ample fiscal and external buffers, with central bank net foreign assets at $415 billion, covering the IMF’s reserve adequacy metric by 187%, and relatively low debt levels at under 30% of GDP. Looking ahead, the Fund called for gradual fiscal consolidation involving greater non-oil revenue mobilization, further energy subsidy reforms, and continued spending rationalization, in addition to the prudent management of debt and sovereign assets and liabilities. The report also stressed the need to accelerate structural reform momentum amid heightened global economic uncertainty. Although banking sector metrics remain sound with strong capitalization and profitability, risks to financial stability from strong credit growth and funding pressures should be monitored and addressed. Finally, weaker oil demand due to global trade tensions, lower government spending, and regional geopolitics were mentioned as key downside risks. 

Qatar: Non-energy private sector activity cools in July. The non-energy private sector PMI eased to 51.4 in July from 51.9 in June amid a continued contraction in new orders and softness in output growth, both outweighing a near-record increase in employment. New orders fell at a sharper pace month-over-month in July, logging the lowest reading in five-months and the fifth contraction this year. Meanwhile, output grew only marginally, with weakness in the manufacturing sector pressuring overall growth. The continued softness in demand conditions has weighed on business sentiment, with firms’ 12-month outlook at its lowest in a year while prices charged to customers declined for the twelfth consecutive month. Staff costs, however, rose at the third fastest pace in the series’ history, amid strong employment growth – the second fastest on record – especially in the wholesale and retail sectors.

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