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Daily Economic Update
24.07.2025US: Trump vows 15-50% tariffs on most countries, while EU may face a 15% rate; prospects of trade deals lift equity markets. President Trump said that he may impose “a straight, simple tariff of anywhere between 15% and 50%” on most countries but he left the door open for negotiations to reduce these rates. The proposed minimum 15% rate is higher than the current baseline duty of 10% on imports from many countries. While doubling down on tariffs as a key negotiation strategy, he also stated that major trading partners could face reduced tariff rates if they “open their markets to the USA” and provide ‘zero tariff’ access for American goods. According to media reports, EU and US officials are working on a trade agreement that would see a 15% tariff on EU goods, covering sectors including auto and metal, versus the threatened 30% levies due to be effective from Aug 1. However, in parallel, the EU is also said to be preparing its own retaliatory measures, including hitting US goods worth around €93bn with 30% duties in case trade talks fail. Meanwhile, South Korea (the US’s eighth largest bilateral trade partner, with total goods trade of $81bn in 5M25) is also pitching for a trade framework, with 15% tariffs on its auto shipments to the US, similar to the one the US agreed with Japan that also includes creating a fund to invest in the US and importing more US goods. With such trade agreements in pipeline, which are of course not certain given Trump’s unpredictable style, the overall tariff rate in the US is likely to settle around 15-20%. The prospects of more trade agreements and the dust likely settling on tariff uncertainty before the Aug 1 deadline boosted ‘risk-on’ sentiment and lifted US equity markets yesterday, with the S&P 500 hitting a fresh record high and closing +0.8% d/d.
Japan: Composite PMI holds steady in July on services sector expansion. The flash estimate for the composite PMI was stable in July at 51.5, unchanged from June’s final reading, and signaling a further modest increase in private sector output. This came mainly on a solid expansion in the services component, which rose to a four-month high of 53.5 from June’s final reading of 51.7. On the other hand, the manufacturing sector slipped into contraction in July, coming in at 48.8 from 50.1 in the previous month, weighed down by lingering uncertainties over future US trade policy. Output and new orders contracted while new export orders fell at the quickest pace since last October as businesses adopted a more cautious approach in response to ongoing trade tensions. Employment for both sectors saw a marginal increase during July that was the weakest in 18 months while business sentiment weakened after reaching a five-month high in the previous month. On the prices front, the rate of cost inflation eased in July for both sectors, indicating a more moderate increase in labor, fuel and raw materials costs, which in turn drove output prices to rise more slowly. While the recent announcement of a new trade deal with the US could have a positive impact on the outlook, firms are waiting for the release of the details, which are still being ironed out including the 15% tariff on most Japanese goods and the 50% tariffs on steel and aluminum.
Egypt: Narrower current account deficit in Q1. The current account deficit narrowed to $2.2 billion (2.4% of GDP) in Q1 of 2025 from $5.2 billion in Q4 2024 and $7.5 billion in Q1 24, according to official data. The lower deficit was thanks to a jump (87% y/y to $9.5bn) in remittances of Egyptians working abroad, which have seen a steady quarterly increase since the adoption of a flexible exchange rate regime in early 2024, leading to a sharp devaluation of the pound and smoother functioning of the FX market. The services balance (22% y/y) was also supported by higher receipts from travel and transportation, although Suez Canal receipts remained very subdued (at $830mn still down 67% from peak 2023 levels), given ongoing shipping disruptions in the Red Sea. The devaluation also likely gave a boost to goods exports, which rose by 44% y/y in Q1 as they became more competitive, although the positive impact on the trade balance was more than offset by a 22% rise in imports in line with the pick-up in economic activity and an unwinding of import controls. As a result, the trade deficit widened by 7% to $10.8bn. The current account balance overall could remain pressured by higher growth-driven import costs (especially energy imports) and a possible easing of remittances from the current exceptionally high level, but could be curbed by an eventual recovery in Suez canal revenues. The Egyptian pound has been trading stronger over the past couple of months against a generally weaker US dollar, up around 2.5% since mid-May at EGP49.1/$1 as of yesterday, reflecting high local interest rates but also improving domestic economic conditions and broadly reduced external vulnerabilities under the new FX regime.
