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Daily Economic Update
08.07.2025US: Tariff letters sent to 14 countries with broadly similar tariff rates to the original April ones. President Trump sent letters to 14 countries (Japan, South Korea, Malaysia, Kazakhstan, South Africa, Laos, Myanmar, Bosnia and Herzegovina, Tunisia, Indonesia, Bangladesh, Serbia, Cambodia, and Thailand) specifying tariff rates, which were broadly similar but on average slightly lower than the original April 2 “reciprocal” tariffs, which will start to be paid on 1 August. The tariff rates remain elevated, standing between 25% and 40%. Importantly, the letters mentioned that if the countries retaliated by increasing their own tariffs, there will be an automatic and equal increase in US tariffs. Out of the 14 countries, we note that Japan, South Korea, Thailand, Malaysia, and Indonesia are among the 20 largest merchandise trading partners of the US, while the others account for a relatively small amount of total US trade. These five countries accounted for a combined 12.4% of total US imports in the first five months of this year, and were slapped by tariffs of 25%, 25%, 36%, 25%, and 32%, respectively, nearly identical to the original April 2 tariffs. We note that most of these countries have been in constant negotiations with US officials since April 2. We believe this move by the US administration, i.e. pushing the deadline from July 9 to August 1, is yet another attempt to extract the maximum possible concessions from its trading partners. In fact, Trump mentioned that the new 1 August deadline is not “100% firm”. It is interesting to note that the US’s trade agreement with Vietnam, whose details are still lacking, puts a 20% tariff on imports to the US, which is not far from the tariffs being imposed on countries that haven’t signed deals. Unlike the aftermath of the April 2 “Liberation Day” when stock markets plunged, the market reaction this time has been broadly muted so far. The S&P 500 fell by 0.8% yesterday, not far from its intra-day loss before the tariff announcement, S&P 500 futures are broadly flat at the time of writing while Japanese and South Korean stock markets are currently in the green.
Japan: Decline in real wage growth accelerates in May. Total cash earnings growth decelerated to 1% y/y in May from April’s 2%, according to a Ministry of Health, Labour & Welfare survey. The decline came mainly due to the 18.7% fall in special payments, which are mainly made up of volatile one-off bonuses. Slower growth came despite the results of the annual spring wage negotiations, which saw the highest pay hike in 34 years, with an average increase of 5.25% for workers at companies affiliated with Rengo, the largest union federation. Meanwhile, the decline in real (i.e. inflation-adjusted) wages accelerated for the fourth straight month, coming at -2.9% y/y in May and logging its steepest decline in 20 months. The consumer price inflation rate that is used for the calculation of real wages (including fresh food but excluding rents) rose by 4.0% y/y during the same month, putting a dent on the hopes for a consumption-led recovery. The continued contraction in real wages since the beginning of the year, persistent inflationary pressures and rising uncertainties about securing a trade deal with the US complicates the Bank of Japan’s monetary policy normalization schedule with the market currently projecting no change in the policy rate at the meeting at the end of July.
Eurozone: Retail sales fall, China trade tensions rise. Retail sales faced their steepest decline in 21 months in May, falling 0.7% m/m (matching consensus expectations) and breaking a three-month streak of increasing sales. Europe’s three biggest economies all experienced the slowdown, with Germany, France, and Italy seeing retail sales decline 1.7% m/m, 0.2%, and 0.4%, respectively. The data also coincides with a 0.3% decrease in overall services production in April, possibly indicating growing consumer weakness in the eurozone. Elsewhere, China has retaliated against an EU decision to put some limits on the country’s participation in the €250 billion public medical procurement market by putting similar restrictions on EU companies’ participation in procurement contracts in China. This decision is the latest in a series of measures between the two countries, which include China’s anti-dumping duties on European alcohol (announced last week) and the EU’s 45% tariff on Chinese EVs in 2024.
Egypt: Foreign reserves hit fresh record high in June. Gross official reserves reached an all-time high of $ 48.7 billion in June, up 5% y/y (0.4% m/m). The reserve increase was driven almost entirely by a surge (43% y/y) in gold reserves on a higher valuation in line with the significant increase in the market price of gold over the past year. Meanwhile, foreign currency reserves rose modestly from last month (0.8%) but declined on an annual basis (-4.9%), as the effect of capital inflows from the May 2024 final tranche of the Ras El-Hekma investment deal, worth $14 billion, fell out of the year-on-year comparison. The reserve build-up is supportive of Egypt’s targeted reduction in public debt as it reduces the risk of refinancing, while also helping to maintain currency and price stability. The economy is still in the process of recovering from the jump in inflation of 2024, partly driven by surging import costs due to the depreciation of the pound and a shortage of foreign currency. Separately, the net foreign assets in the banking system improved in May to $14.7 billion from $13.5 billion in April, boosted by an increase in NFAs at commercial banks to $4.8 billion from $1.6 billion in April.