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Daily Economic Update
01.07.2025Kuwait: Business and household credit growth accelerate in May, hitting multi-month highs. Domestic credit increased by 0.4% in May, driving up YTD growth to 3.4% (5.5% y/y). Underlying growth was stronger, with solid expansion in both business and household credit. Continuing its recent strong growth, business credit increased by 1.3% in May, the fastest expansion in more than three years, pushing up the YTD increase to 4.1% (6.4% y/y). Business credit growth was broad-based across the different sectors in May with ‘other services’ in the lead for the second straight month. From a YTD basis, ‘other services’ (+7.8%), ‘trade’ (+6.6%), and ‘real estate’ (+3.6%) are the fastest growing. Household credit increased by 0.5% m/m, the quickest growth in a year, driving up the YTD increase to a still-limited 1.2% (3.3% y/y). However, we note that in both 2023 and 2024, household credit growth was much stronger in the second half of the year than in the first half. Led by a decline in the volatile public-institution deposits, resident deposits decreased in May and are up a limited 1.4% YTD. After three solid months, private-sector deposits (78% of the total) also inched down in May, but are still up by 2.8% YTD (4.4% y/y). Within private-sector KD deposits, CASA increased for the fifth consecutive month, outpacing on a YTD basis (+4.2%) the rise in time deposits (+2.6%).
Saudi Arabia: FDI inflows continue to be strong. Preliminary official data show gross foreign direct investment (FDI) inflows in Q1 2025 reaching SR24 billion ($6.4bn; 2.9% of non-oil GDP), increasing by 24% y/y but down slightly compared to the previous quarter (SR25.6bn). This is the strongest start to a year for FDI in three years. Meanwhile, outflows eased to SR1.8 billion, a 54% decline over the same quarter of 2024, helping to maintain a solid level of inflows on a net basis (retained inflows) of SR22.2 billion (+44% y/y). The strong inbound FDI reading reflects the attractive investment proposition of the Kingdom and came despite global economic and geopolitical uncertainty and overall weaker global investor sentiment. FDI inflows were also supported by the Kingdom’s efforts to encourage foreign companies to establish a regional headquarters amid a vast pipeline of megaprojects and a robust reform-driven business environment. The government has set an ambitious inward FDI target of SR140 billion ($37bn) for 2025 and SR388 billion ($100bn) annually by 2030, which, even with partial success, should strongly support the funding of Vision 2030 projects given the expectation of medium-term fiscal deficits and rising external debt.
Egypt: Economy grows by 4.8% y/y in Jan-Mar, the fastest pace in three years. Official figures show Egypt’s economy growing by 4.8% in Jan-Mar (Q3 FY24/25), up from 4.3% in Oct-Dec (Q2 FY24/25), a fourth consecutive quarter of accelerating growth and the fastest rate in three years. Growth was driven by double-digit output gains in the non-oil manufacturing sector (16% y/y), which contributed 1.9% pts to headline growth. The manufacturing sector’s impressive performance in Q1 is a marked turnaround from the 4% y/y contraction recorded a year earlier, and was supported by industrial goods for export. Tourism (23% y/y), financial intermediation (17.3%) and insurance (7.7%) were also standouts, though weighing on activity was oil & gas extraction especially (-10.4% y/y). Private investment continued to post impressive gains, rising 24% y/y in the quarter, outpacing public investment for the third quarter in a row. The latter declined by a sizeable 46% y/y, outweighing the positive contribution of private investment to overall growth. Nevertheless, the Egyptian authorities will be heartened by the latest figures as they expect economic growth in FY24/25 to exceed its 4% target.
Europe: The EU to accept the US baseline 10% tariff while seeking exemptions elsewhere. According to some media reports, the European Union is willing to go ahead with a trade framework with the US that includes a 10% blanket tariff on its exports on condition that the US grants tariff reprieves elsewhere, such as on automobiles and steel/aluminum, where the bloc currently faces 25% and 50% tariffs, respectively. Absent an agreement by July 9, and given President Trump’s prior threats, the EU will be hit with a 50% ‘reciprocal’ tariff unless this deadline is postponed further. NATO members’ decision last week to hike defense spending from 2% to 5% of GDP by 2035 is one important factor facilitating the reaching of a trade framework with the US as the bulk of that increase in spending can be directed to purchases from US companies, thereby narrowing the trade deficit that the US has with the EU. On the other hand, the many sector-specific tariffs (section 232) currently being mulled by the US authorities is a complicating factor as trading partners do not want to sign trade frameworks with the US only to be hit by new sectoral tariffs after that.
Japan: Manufacturing Tankan index shows resilience in Q2 despite trade tensions. The Bank of Japan Tankan index for large manufacturers came in slightly higher than market forecasts at 13 in Q225, up from a one-year low of 12 in the previous quarter, despite ongoing trade tensions with the US. Confidence improved among producers within the chemicals, iron & steel, and ‘business-oriented machinery’ sectors, but weakened among motor vehicle producers (8 versus 13 in Q1). The survey also showed that large firms planned to raise capital expenditure by over 11% in Q2, a sharp acceleration from 3.5% growth in Q1. On the other hand, the index for the non-manufacturing sector declined to 34 as sentiment fell within the retail (18 versus 21) and real estate sectors, highlighting the impact of persistent inflation pressure on domestic demand. Meanwhile, the auction for the 10-year Japanese Government Bonds of JPY2.6 trillion saw strong demand, with the bid-to-cover ratio at 3.51 and the yield at 1.442% (versus around 1.55% in late May) as the selling pressure on long duration bonds eases.