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Daily Economic Update
17.07.2025Kuwait: GDP returned to growth in Q1 2025. Preliminary official estimates show that headline GDP grew 1% y/y in Q1 2025 (-0.8% in Q4 2024), marking the first expansion since Q2 2023. This was supported by a smaller contraction in oil GDP as the negative effects of earlier voluntary oil production cuts began to fade. Oil GDP fell 0.3% y/y compared to a decline of 5.7% in Q4 2024, the least negative reading since Q2 2023, when Kuwait implemented the first tranche of voluntary crude production cuts in May of that year and as base effects from the second tranche of voluntary cuts implemented in January 2024 fizzled. Meanwhile, growth in the non-oil economy softened to 2% y/y from 4% in the previous quarter, with notable slowdowns in the manufacturing, real estate, and transport sectors. However, growth strengthened in the largest segments of the non-oil economy, with both public administration and defense and financial intermediation expanding by 1% and 3.2% y/y, respectively. Notably, the statistical release did not include any revisions to the historical data. The positive headline GDP reading aligns with our expectations of the economy returning to growth this year and next as Kuwait begins restoring 135 kb/d of crude oil output withheld since 2024 in line with its OPEC+ quota obligations, alongside gradually improving non-oil sector performance.
US: PPI inflation for June broadly tame; before Trumps’s denial, wild swings in markets following news of Powell’s firing. The PPI was unchanged in June for both the headline and core, lower than expected, although both were revised higher for May. On a y/y basis, the headline rate fell to 2.3% (2.7% in May) and the core rate to 2.6% from 3.2%. Under the surface, some details were not that tame as June’s flat reading was driven by a 0.1% m/m drop in services prices while goods prices increased by 0.3% m/m, accelerating for the third straight month, with prices of core goods also up 0.3% m/m compared with 0.2% in May. Prices of durable consumer goods increased by 0.4% m/m following a 0.5% increase in May, the biggest back-to-back increase in a few years. Meanwhile, President Trump mentioned that he will be sending “a notice of payment” for more than 150 countries, which are the US’s small trading partners, indicating their tariff rate, either 10% or 15%, and which will be the same for all. We note that Trump mentioned earlier that the minimum baseline rate is going to be 15% to 20%. Finally, our take-away from yesterday’s news about Trump floating the idea of firing Fed Chair Powell is the immediate wild market reaction, with the US dollar index plunging, long-term US yields jumping, and the S&P 500 falling before these market swings were reversed after Trump said that it is “highly unlikely” for him to fire Powell.
UK: Inflation increases to the highest since January 2024, exceeding expectations. CPI inflation in June edged up to 3.6% y/y (3.4 % in May), higher than consensus expectations and Bank of England’s (BoE) projections (both at 3.4%), and the highest since January 2024. This was driven by higher goods inflation, which increased to 2.4% (highest since October 2023) from 2% while services inflation was steady at 4.7% but higher than the BoE’s 4.6% projection. Sector-wise, the main driver of the uptick in inflation was ‘transport’, especially motor fuels. Core inflation also increased to 3.7% from 3.5%, exceeding consensus estimates. The BoE had projected that inflation will be steady at 3.4% before climbing and peaking at 3.7% in September and then steadily softening, hitting the 2% target in the first quarter of 2027. With inflation increasing, the economy contracting in April and May, on top of a worsening fiscal situation, the UK macro picture is far from favorable. Despite the inflation upset, the market is still pricing-in two BoE rate cuts before year end.
Japan: Exports decline for the second consecutive month in June. Exports declined for the second consecutive month in June by 0.5% y/y driven by declines in exports of electrical machinery (-3.2% y/y), motor vehicles (-7.3%), and manufactured goods (-8.0%). In addition, exports shrank to China (-4.7%), US (-11.4%) and Canada (-26%). In contrast, imports inched up by 0.2% y/y, the first increase in three months with imports from China rising by 5.3%, while purchases from ASEAN countries and the EU increased by 3.5% and 14.7%, respectively. However, imports declined from the US (-2.0%), Russia (-34%), and the Middle East (-21%). As a result, the trade surplus narrowed to JPY 153 billion. Meanwhile, the US president again criticized Japan’s trade stance reiterating his threat of imposing a 25% tariff on Japanese imports starting August 1 if the country did not take action to open its economy to US products. However, the Japanese Deputy Chief Cabinet Secretary, Aoki Kazuhiko, stressed the government’s commitment to reach a trade deal while protecting national interests.