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Daily Economic Update
21.07.2025Kuwait: Government looking at establishing a KD50 billion domestic investment fund. According to a report in Al Qabas newspaper, the government is looking at establishing a giant new KD50 billion (around 100% of GDP) domestic investment fund to support and implement major projects. The ‘Al-Kout Investment Company’ would be under the supervision of the Minister of Economic Affairs and Investment, and focus on investing in infrastructure, real estate, tourism, and industry. The proposal has echoes of the ‘Ciyada’ investment fund plan mentioned in a 2023 government work agenda with many of the target areas overlapping. The KD50 billion in capital will come from an initial government injection (which in our view could include funds from the reported $1 trillion in assets of the KIA), with subsequent funding from bond and sukuk issuances and partnerships with regional sovereign wealth funds or other strategic investors. According to the report, by 2030 Al-Kout would aim to attract KD10 billion (around 20% of 2025 GDP) in private and foreign investments, generate KD1 billion in annual revenues, create 50,000 jobs, and decrease the financial burden on the budget by 30%, with the latter potentially implying that large amounts of project spending could be shifted off-budget, similar to the PIF in Saudi Arabia. The completion of the regulatory framework and launch of Al-Kout is targeted to be finalized this year, followed by the implementation of initial projects in transportation, energy and logistics sectors next year, and finally reaching financial sustainability by 2030. If the proposal is ultimately signed off, it could prove to be a watershed moment with successful implementation and management of the fund helping to diversify the economy away from oil and supercharge non-oil economic growth via developing the private sector. The fund could also reorient some of the state’s massive balance sheet towards domestic use whilst preserving strong investment returns, strengthen the credibility of long-term development goals and address low domestic investment rates that have been a feature of the Kuwaiti economy for years.
Kuwait: Headline inflation steady but core continues to ease. Consumer price inflation stood at 2.3% y/y for the third straight month in June as faster increases in food & beverage and housing costs were offset by softer rises in most core components. Food & beverage inflation edged up to 5.1% (May 4.7%), driven higher by sharper increases in fish and seafood prices. Inflation in the housing services component, the largest by weight, rose 1% compared to 0.7% in the prior month amid an increase in housing rents. Offsetting the acceleration in both food and housing was a drop in core inflation (which strips out both components) which rose by 2.1% (May 2.3%), the slowest pace since September 2020. This softening trend was most notable in the clothing & footwear component, which continued on its disinflationary trend with the rate slowing to 3.9%, the lowest in almost five years, while the health, education and the services & miscellaneous categories also eased. The deflation in the transport sector deepened to -1.8% y/y, owing to lower passenger air ticket prices. The only core inflation subcomponent in which prices rose at a faster pace was in restaurants & hotels, which clocked at 1.9% (May 1.5%). Despite being stable recently, inflation (and especially the core rate) has been on a steadily declining trend since early 2024 and with subdued consumer spending and moderate non-oil growth we expect no major breakout this year and inflation to come in at 2.3% on a year average basis in 2025. There is however some upside risk from potential hikes in fees for government services, which potentially includes a repricing of electricity and water surcharges.
Oil: Prices drop on softer Trump announcement on Russia and closer deal between Iraq and KRG. Brent futures closed Friday at $69.3/bbl, dropping 1.5% w/w as the market shrugged off Trump’s “major announcement” on Russia and on higher prospects of a resumption of Kurdistan’s oil exports. Earlier in the week, Trump’s tariff announcement on Russia delivered a softer threat to Russian oil supply than the market had expected, with the US president opting to avoid immediate action and instead offering a 50-day window for Russia to reach a peace deal with Ukraine (discussed in more detail here). Putting further pressure on prices was the news that Iraq has approved a plan for the Kurdistan Regional Government (KRG) to transfer its oil to Baghdad, an agreement that puts Kurdish crude exports (~230 kb/d) closer towards flowing again since being halted in March 2023. However, drone attacks on KRG fields have taken roughly 200 kb/d of oil production down, according to official estimates, providing support to the market. The EIA’s weekly report came in mixed, with US commercial crude inventories declining 3.9 mb w/w in the w/e July 13, though gasoline inventories registered a counter-seasonal increase of 3.4 mb. Meanwhile, the EU passed its 18th sanctions package on Russia, the main element of which was the switching from the old and largely ineffective $60/bbl price cap to a moving 15% price cap below the Russian crude average price, in a bid to lower revenues generated by the Russian state. The new sanctions package is unlikely to seriously affect Russian energy trade, with India, China, and Turkey continuing to acquire cheaper barrels.
Japan: Ruling coalition loses majority in upper house elections. In a historic twist, Prime Minister Shigeru Ishiba’s ruling Liberal Democratic Party–Komeito coalition has lost its grip on both chambers of the Diet for the first time since 1955. In yesterday’s upper house election, the coalition secured just 47 of the 124 contested seats, falling short of the 50 required to maintain control in the 248-member chamber, compounding the October defeat in the lower house. The results of the elections reflect the voters discontent related to inflation, the overshoot of rice prices, declining real wages, and other shortcomings. The right-wing populist Sanseito party, which campaigned on tax cuts and immigration control, surged from a single seat to at least 14, overtaking established opposition parties. However, the prime minister, who advocated for fiscal restraint to preserve confidence in the volatile bond market, vowed to remain at the helm, citing the urgency of upcoming US trade negotiations (August 1 deadline) despite mounting internal pressure and legislative gridlock in an increasingly fragmented parliament.
China: PBoC maintains one-year and five-year benchmark rates, likely in a wait-and-watch mode. The People’s Bank of China left one-year (linked to most corporate and household loans) and five-year (a benchmark rate for mortgages) loan prime rates steady at 3% and 3.5%, respectively, as widely expected. Both were last cut by 10 bps in May. Recently reported economic data prints have been mixed, with GDP growth slowing to 5.2% in Q225 but still above the official target of ‘around 5%’ for the full year. The latest export figures were solid but domestic consumption was weak amid ongoing deflationary concerns. We think that given still-decent GDP growth, the Chinese authorities may want to procced cautiously in rolling out more monetary stimulus. Additionally, the PBoC may also be looking to assess the clear impact of higher US tariffs once the dust on their implementation settles before taking further actions.
Global: July flash PMI readings in major international markets and ECB meeting key matters this week, along with any updates on US tariffs. Business activity indicators across the US, Eurozone, UK, and Japan are in focus this week, while after Trump issued letters to impose higher tariffs on most trading partners recently, markets will be looking for any further updates. In terms of scheduled releases/events, in the US, the S&P Global flash PMI surveys for July are due on Thursday and the street forecasts a decline in the manufacturing reading (to 52.4 from 52.9 in June) but a flat services one at 52.9. Initial weekly jobless claims for the w/e July 19 (due on Thursday), which surprisingly dropped last week, are seen inching up to 230K from 221K. In the Eurozone, on Thursday, the ECB is expected to maintain its benchmark deposit rate at 2% after lowering it by 25 bps in June. The HCOB flash PMIs for July (Thursday) are seen improving for manufacturing (to 49.8 from 49.5 in June) and services (to 50.8 from 50.5). In the UK, the flash PMIs for July (Thursday) are expected to increase for manufacturing (to 48.1 from June’s 47.7) and services (to 53 from 52.8). June retail sales are due on Friday, and consensus forecasts point to a rebound (1.2% m/m) following a sharp fall of 2.7% in May. Finally, in Japan, the flash manufacturing PMI for July will be released on Thursday, with markets projecting it to uptick to 50.2 from 50.1 in June. In addition, Tokyo’s core urban inflation in July is seen softening slightly to 3% from 3.1% the previous month.