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Daily Economic Update
13.07.2025US: Trump increases tariffs on the US’s three-largest trading partners and indicates a 15-20% minimum tariff for all countries. Trump continued building his tariff wall by announcing higher tariffs on the US’s three largest trading partners (EU, Mexico, Canada) effective 1 August and indicating that the minimum baseline tariff that will apply to any country will be 15% or 20%. The EU, Mexico, and Canada accounted for 20.2%, 14.6% and 11.2% of total US merchandise imports in 5M2025. The EU rate of 30% is higher than the original 2 April rate of 20%, but lower than the 50% threatened a few weeks ago. The EU, despite steadily prioritizing negotiations and de-escalation amid the repeated US escalation, couldn’t avoid receiving the tariff letter. It looks like that the new rate for Canada (35%) and Mexico (30%), compared with 25% for both previously, would still exclude USMCA-compliant imports, which account for a significant portion of the total imports from these two countries. The letters to Mexico and Canada mentioned the fentanyl issue although in the case of Canada, the data shows that very little fentanyl crosses the border to the US. Hence, the fentanyl issue is just an excuse to impose these tariffs on Canada. The mention that the 10% minimum will be increased to 15% or 20% is not surprising. We note that a global blanket tariff of 10% to 20% has been Trump’s original plan as mentioned during his election campaign. We are inclined to expect that the minimum will be 20% as opposed to 15% and we got a hint of that last week when the Philippines’ rate was increased from the original 17% to 20% although tariff rates have, on average, decreased for other countries. In addition, the higher 20% rate is in line with Trump’s strategy of building this tariff wall. It is interesting that Trump recently said that his tariffs have been well received, after the stock market hit a record high on Thursday. By the same logic, this shows that he would have taken notice when the market plunged in April due to his policies, although he doesn’t admit that very easily. While as we had written earlier, we think there is less chance this time around for an across-the-board postponing of the 1 August deadline, it is certainly always possible that Trump will be open to postponing that deadline for the US’s big trading partners such as the EU, Mexico, Canada, Japan, South Korea, etc., especially if he sees that the ongoing negotiations are leading to further concessions by these counties.
UK: May GDP worse than expected with the economy contracting for the second straight month. The UK economy in May shrank by 0.1% m/m, much weaker than the 0.1% increase that was expected, and the second straight month of decline. The monthly fall was driven by a 0.9% decline in industrial production and a 0.6% decrease in construction output while services output inched up by 0.1% m/m. These monthly GDP figures, which tend to be volatile and subject to wide revisions, do not really chime with the PMI figures, which have shown an improvement in May and a further strengthening in June. In all cases, these GDP numbers are a blow to the government which has been grappling with weak underlying growth and a worsening fiscal situation. Further fiscal tightening, which is expected in the upcoming Autumn budget will add to the growth challenges. The BoE had recently upgraded Q2 GDP growth to a still-lackluster 0.25% q/q, which judging by the monthly GDP figures for April-May, looks optimistic.
Egypt: Central bank keeps interest rates unchanged. In line with market expectations, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) decided on Thursday to keep interest rates unchanged at 24% for the overnight deposit rate and 25% for the lending rate, despite the lower-than-expected inflation in June (14.9% from 16.8% in May). The decision follows two rate cuts totaling 325bps in April and May, part of ongoing efforts to normalize interest rates and support the economy amid economic reforms endorsed by the IMF. The MPC cited persistent risks relating to global trade and geopolitics, along with oil price volatility and weaker global demand as reasons for the more cautious monetary policy approach and the decision to hold interest rates in its latest meeting. It would also allow time to see the pass-through impact of recent hikes in VAT including on tobacco prices. Moreover, the CBE projects a sustained economic recovery, with growth to remain around the 4.8% y/y recorded in Q1, and subdued demand-side inflationary pressure, implying that interest rates are currently sufficiently accommodative to support a continued recovery. Still, we see good prospects for a resumption of rate cuts at the next meeting in August, with potentially a further cumulative 300 bps in cuts by year-end.
Saudi Arabia: Industrial production continued to rise in June. The industrial production index rose by 1.3% y/y in June from a 0.8% increase in May. Higher production came despite the marginal growth in oil activities (0.2% y/y) which was weighed down by a steep (7%) drop in the manufacturing of coke and refined petroleum products. Non-oil activities continued to expand at a robust pace of 3.9% y/y with manufacturing output up by 4.8% led by chemical, non-metallic, and paper products manufacturing which grew by 14%, 11%, and 5% y/y respectively. Additionally, water supply, waste management and remediation activities saw strong growth of 16%. Oil activity growth is expected to recover sharply in coming months in line with the scheduled increase in oil production, while the outlook for non-oil activity growth remains positive.
