Markets energised on expectations of trade respite, but downside policy risks remain – Weekly Economic Commentary, 5 May 2025

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Markets

Major equities markets rallied last week, with the S&P 500 having erased all its losses since “reciprocal tariffs” were announced on Apr 2nd, thanks to strong corporate earnings results and data consistent with a resilient US labour market. China’s announcement that it was “evaluating” US trade talks proposals supported gains in European and Asian markets as well. However, the announcement of 100% tariffs on movies produced outside the US could trigger a damaging services trade war. Regional markets were mostly up, with only Saudi posting a slight dip weighed down by lower oil prices while Abu Dhabi’s weekly gain was the most since early-Nov 2023. Among currencies, the dollar regained, while the euro and GBP posted weekly losses (most since mid-Mar and late-Feb respectively). Crude oil prices fell over 7.5% (WTI) to 8%+ (Brent) from a week ago (ahead of the OPEC+ meeting on Saturday). Oil prices have since dipped to below USD 60 per barrel after trading began this week following OPEC+ decision to expand production. Gold price reversed gains and declined by more than 2.0% on perception of easing trade tensions.

Global Developments

US/Americas:

• President Trump announced a 100% tariff on movies produced outside the US – this would be the first tariff on services, and it remains unclear how it would be imposed. A services trade war would damage the US which runs a large services account surplus and trigger retaliation from the EU among others.
• US GDP shrank at an annualised 0.3% pace in Q1 (Q4: 2.4%), the first since Q1 2022 and below 2.4% of Q4 2024, weighed down by the frontloading of imports ahead of tariff hikes (+41.3%, the largest increase since Q3 2020) and decline in government spending (-5.1%). While consumer spending and gross private fixed investment grew by 3.0% (Q4: 2.9%) in Q1, the impact of tariffs will drag domestic demand down in the Q2.
• Core PCE in the US declined to 2.6% yoy in Mar (from 3% the month before) while it was flat monthly (Feb: 0.5%). The PCE price index remained unchanged in Mar month-on-month (Feb: 0.4%) while up by 2.3% yoy following the 2.7% uptick in Feb.
• Personal income grew by 0.5% mom in Mar, slower than Feb’s 0.7% gain while spending increased by 0.7% (vs 0.4%). Personal saving rate (i.e. personal saving as a percentage of disposable personal income) stood at 3.9%.
• Non-farm payrolls in the US expanded by 177k in Apr, following a downwardly revised 185k in Mar; federal government employment fell by 9k while healthcare and financial activities added 51k and 14k respectively. Labour force participation rate ticked up to 62.6% (from 62.5%) while unemployment rate was unchanged at 4.2%.
• The US added 62k private sector jobs in Apr (Mar: 147k), the smallest increase since Jul 2024, as goods-producing and service-providing jobs grew by 26k and 34k respectively. Health and education sector saw the largest job losses of 23k.
• JOLTS job openings declined to a 6-month low of 7.192mn in Mar (Feb: 7.48mn), while hiring increased by just 41k to 5.411mn and layoffs dropped to a 9-month low. There were 1.02 job openings for every unemployed person, down from Feb’s 1.06.
• Initial jobless claims increased by 18k to a 2-month high of 241k in the week ended Apr 25; the 4-week average inched up by 5.5k to 226k. Continuing jobless claims rose by 83k to 1.916mn in the week ended Apr 18, the highest reading since Nov 2021.
• Factory orders in the US accelerated by 4.3% mom in Mar (Feb: 0.5%), strengthened by orders placed before the tariffs were announced. Durable goods orders expanded by 9.2%, largely due to commercial aircraft orders (+139%) and transportation equipment (+27.1%).
• Dallas Fed manufacturing business index slumped to -35.8 in Apr (Mar: -16.3); this was the lowest since May 2020, as new orders index plunged by 19.9 points to –20.0 and the shipments index fell into negative territory (down by 11.6 points to –5.5).
• Chicago PMI slipped to 44.6 in Apr (Mar: 47.6), contracting for the 17th month in a row, pulled down by new orders and production alongside an uptick in prices paid (highest since Aug 2022).
• US goods trade deficit widened to a record-high USD 162bn in Mar (Feb: USD 147bn), as businesses stockpiled goods ahead of tariffs. Imports surged to an all-time high of USD 342.746bn (thanks to a 27.5% increase in consumer goods) while goods exports increased by USD 2.2bn to USD 180.8bn.
• S&P Case Shiller home price indices grew by 4.5% yoy in Feb (Jan: 4.7%), rising for the 25th consecutive month. Even though mortgage rates are now near 6.5%, a limited supply has been keeping prices high.
• The Conference Board’s consumer confidence index the US fell 7.9 points to 86.0 in Apr, the lowest reading since May 2020. The expectations index tumbled to 54.4, posting the lowest reading since Oct 2011 and down by 12.5 points from Mar.
• S&P Global manufacturing PMI stood at 50.2 in Apr (prelim: 50.7), unchanged from Mar, as new export orders fell alongside a domestic-demand driven increase in new orders; output prices rose at the fastest pace since early-2023.
• ISM manufacturing PMI slipped to a 5-month low of 48.7 in Apr (Mar: 49), with new orders rising to 47.2 (from 45.2) alongside employment (46.5 from 44.7) while prices paid jumped to 69.8 (the highest level since Jun 2022, and up from Mar’s 69.4).

Europe:

• GDP in the eurozone grew by 0.4% qoq and 1.2% yoy in Q1 (Q4: 0.2% qoq and 1.2% yoy), supported by expansions in Ireland (3.2%), Spain (0.6%) and Italy (0.3%), Germany (0.2%) and France (0.1%).
• Eurozone inflation stood unchanged in 2.2% in Apr, while core inflation inched up to 2.7% (from 2.4%) – this was the first uptick in core inflation since May 2024 and was driven by services inflation (3.9% in Apr, from 3.5% in Mar). Food and beverages prices were up by 3.0% (Mar: 2.9%) though energy prices continued to drop (-3.5% yoy in Apr).
• Economic sentiment index in the euro area eased to 93.6 in Apr (Mar: 95), the lowest since Dec, with consumer confidence declining to -16.7 from -14.5 in Mar and consumer inflation expectations rising to 29.6 (the highest since Nov 2022). Separately, business climate improved to -0.67 (from -0.72) while industrial confidence slipped to -11.2 (from -10.7).
• Manufacturing PMI in eurozone jumped to a 32-month high of 49 in Apr (prelim: 48.7, Mar: 48.6) – output and new orders indices rose to three-year highs though the latter was still under the 50-mark; output charge inflation increased to a 2-year high.
• Unemployment rate in the eurozone remained at a record-low 6.2% in Mar compared to 6.5% a year ago. In the EU, unemployment rate was unchanged at 5.8% while youth unemployment rate inched lower to 14.5% (Feb: 14.6%).
• GDP in Germany rebounded in Q1, up by 0.2% qoq (Q4: -0.2%), with household final consumption expenditure and capital formation credited for the uptick. In yoy terms, GDP fell by 0.2%. The harmonised index of consumer prices eased to 2.2% yoy in Apr (Mar: 2.3%) alongside an acceleration in core inflation (2.9% from Mar’s 2.6%) that can be traced back to the services print (3.9% from 3.5%).
• Germany’s manufacturing PMI increased to 48.4 in Apr (prelim: 48, Mar: 48.3), the highest since Aug 2022, thanks to an increase in output and supported by export sales. Input costs declined while firms increased output prices for the first time since May 2023.
• German GFK consumer confidence index rose by 3.7 points to -20.6 in May, supported by income expectations (4.3, the highest since Oct), economic expectations (up 0.3 points to 7.2) and an improvement in willingness to buy (-4.9 vs -8.2).
• Retail sales in Germany fell by 0.2% mom in Mar, reversing the gains made in Feb (+0.2%), because of a decline in non-food sales (-0.6%). In yoy terms, sales were up 2.2%, easing from Feb’s 4.3% uptick.
• Unemployment rate in Germany was unchanged at 6.3% in Mar, the highest reading since Sep 2020.
• UK manufacturing PMI increased to 45.4 in Apr (prelim: 20-month low of 44 and Mar’s 17-month low of 44.9), as new export orders plunged the most in almost 5 years and employment declined for the sixth consecutive month. Business optimism fell to a 29-month low while output price inflation accelerated to a 26-month high.

Asia Pacific:

• China’s NBS manufacturing PMI slipped to 49.0 in Apr (Mar: 50.5), as both output and new orders contracted (to 49.8 and 49.2 respectively) while foreign orders shrank the most in 11 months (44.7 from 49). Non-manufacturing PMI also eased, falling to 50.4 (from 50.8), with declines in new orders and employment (to 44.9 and 45.5).
• Caixin manufacturing PMI in China slipped to 50.4 in Apr (Mar: 51.2), though remaining in expansionary territory for the seventh month in a row. New orders, and foreign sales, saw a substantial drop, given higher US tariffs. Sentiment fell to the third lowest ever since the start of the series in Apr 2012.
• The Bank of Japan left rates unchanged at 0.5% and lowered its growth forecast to 0.5% in the fiscal year 2025 (from 1.1% previously) citing the “introduction of wide-ranging tariffs” and “heightened uncertainties”. The apex bank is staying on course for future rate hikes once inflation and wage growth “slow somewhat”. 
• Industrial production in Japan fell by 1.1% mom and 0.3% yoy in Mar (Feb: 2.3% mom and 0.1% yoy), on concerns over US tariff hikes. Lower output was recorded in motor vehicles (-5.9%) and electrical machinery and electronics equipment (-4.4%) among others.
• Retail trade in Japan grew by 3.1% yoy in Mar (Feb: 1.3%), expanding for the 36th month in a row, with sales higher in clothing & personal goods (7.6%), non-store retailers (3.1%) and machinery & equipment (6.7%). In monthly terms, trade fell by 1.2%.
• Leading economic index in Japan dropped to 107.9 in Feb (Jan: 108.2) amid consumer sentiment weakening to the lowest level since Mar 2023. Coincident index inched up to 117.3 (prelim: 116.9 and Jan: 116.4), the highest reading since Sep 2019, thanks to a recovery in private consumption, business investment and improvements in employment.
• Unemployment in Japan ticked up to 2.5% in Mar (Feb: 2.4%), with the number of unemployed growing by 50k to 1.73mn. Jobs to applicants’ ratio moved up to 1.26 (from Feb’s five-month low of 1.24).
• Japan’s preliminary manufacturing PMI ticked up to 48.7 in Apr (flash: 48.5, Mar: 48.4), staying below-50 for the tenth month in a row, as new orders declined sharply, and foreign sales shrank the most in six months. Sentiment was at the lowest since Jun 2020 given tariffs and weak global demand.
• Industrial and manufacturing output in India both grew by 3% yoy in Mar (Feb: 2.7% and 2.8% respectively). The full year industrial output ticked up by 4% Apr 2024-Mar 2025, but was substantially lower than the 5.9% clocked in during the previous fiscal year.
• Manufacturing PMI in India moved to a 10-month high of 58.2 in Apr (preliminary: 58.4, Mar: 58.1), as new export orders and new businesses jumped alongside a sharp increase in output inflation (highest since Oct 2013).
• Unemployment rate in Singapore edged up to 2.1% in Q1 (Q4: 1.9%), with resident unemployment at 2.9% (Q4: 2.8%) and citizen unemployment at a higher 3.1% (Q4: 2.9%). The ministry of manpower stated that the rates “remained within the non-recessionary range”.

Bottom line: April PMI readings are already showing signs of lower trade (export orders as a proxy) and business confidence amid rising output charges (thanks to tariffs and higher input costs). Meanwhile, resilient job market data support the Fed staying on hold with rates this week though this might invite criticism from the US President again (raising doubts about Fed independence, again!). There was some positive news about potential trade talks between China and the US (with the former stating it is “evaluating” US proposals) even as the US President suggested some trade deals could be announced as early as this week (no countries were specified then; it was mentioned the week before that talks with Japan, South Korea and India were progressing).

Regional Developments

• The IMF forecasts Middle East & North Africa region to grow by 2.6% yoy in 2025, following a very subdued growth rate of 1.8% recorded in 2024. There is a divergence within MENA oil exporters: GCC is projected to drive growth (3.0% in 2025), thanks to robust non-oil sector activity and gradual phase-out of oil production cuts. Break-even oil prices are inching lower: Qatar (USD 44.7 in 2025) and UAE (USD 50.4) are better placed than Bahrain (USD 137.0) or Saudi Arabia (USD 92.3) to a prolonged period of lower oil prices.
• Eight members of OPEC+ have agreed to raise oil production by 411k barrels per day in Jun – this is equivalent to three monthly increments. A similar uptick is likely in Jul, reported Reuters, citing five OPEC+ sources. This is likely to put further downward pressure on oil prices, given downwards revision of global growth and oil demand. Oil prices have dipped to below USD 60 per barrel after trading began today. 
• A senior IMF official stated that Bahrain, with its debt running close to 130% of GDP, should consolidate its government finances (by raising revenue and lowering spending) while undertaking structural reform. He also suggested Oman as a good example wherein the debt was turned around “very quickly”.
• The IMF is urging Egypt to accelerate its divestment strategy, given its help in “sustaining growth”, allowing for greater private sector activity and its help in “reducing debt”. The Fund also warned that the Central Bank be cautious with monetary policy – to make sure that the right decision is taken in the context of potential escalations in the US-China trade war and regional geopolitical conflicts.
• Budget deficit in Egypt fell to EGP 879.3bn (or 5.1% of GDP) in Jul 2024-Feb 2025, down from EGP 898bn (or 6.5% of GDP) from the same period a year ago. Tax revenues accounted for 85.6% of the total revenues (which was up 32.8% to EGP 1.442trn).
• Egypt is targeting an increase in overall exports to USD 145bn by 2030, an estimated annual growth of over 20%, disclosed the minister of investment and foreign trade. He also revealed plans underway to lower customs clearance time to just two days by end- 2025, as a result of extended working hours and 29 trade facilitation measures.
• The number of tourists in Egypt increased by 25% yoy to 3.9mn in Q1 2025, according to the minister of tourism. This year, the number of tourists is expected to rise by 8% by end-2025 and country will add 18k new hotel rooms to meet rising demand
• Kuwait’s crude oil exports to Japan grew by 2.3% yoy to 5.23mn barrels in Mar (or 169,000 barrels per day), posting the first expansion since Sept 2023. UAE was the top exporter from the region (-0.9% yoy to 1.05mn bpd), followed by Saudi (996k bpd).
• Kuwait is planning to build four solar power plants by summer next year, reported the Alanba daily. Combined, these plants will have a generation capacity of 2000 MW, sufficient to power 1.5mn homes. Domestic demand exceeds 19,000MW in the summer months and is projected to record a power deficit of nearly 2000 MW this summer and 2500MW in 2026.
• Inflation in Oman inched up by 0.56% yoy in Mar (Feb: 1.0%), as food and beverages price fell (-0.7%) while the largest increases were attributed to miscellaneous goods and services (6.11%), health (3.22%) and transport (1.74%).
• Oman announced plans to set up a USD 565mn solar manufacturing plant in Sohar freezone, to be wholly funded by China’s JA Solar. The facility, covering 32.8 hectares, will start production in Q1 2026 and have an annual production capacity of 6 GW of solar cells and 3 GW of solar modules.
• Oman’s OQ Gas Networks is planning to build a 300-400km dedicated hydrogen pipeline by 2030, with funding approval expected by 2027. The company is also planning a carbon dioxide transport network to link emission sources with storage and utilisation sites. 
• Qatar attracted QAR 50mn in new industrial investments in Q1 2025 and reported a 32% rise in commercial registrations (supported by efforts to lower service fees and simplify business registration for overseas investors).
• International visitors into Qatar touched over 1.5mn in Q1, slightly below 1.6mn clocked in Q1 2024: visitors from the GCC topped the charts (36% of arrivals) followed by Europe and Asia & Oceania at 28% and 20% respectively.
• QatarEnergy is in discussions with Japan for a long-term LNG deal from its North Field expansion project, reported Reuters. The report mentioned that Jera, Japan’s largest power generator and trading house Mitsui & Co were part of the discussions.
• US approved multiple military sales to the GCC: this included a USD 3.5bn missile sale to Saudi Arabia (an arms package upwards of USD 100bn is likely to be announced during the US President’s visit in May) and a USD 425mn sale of Patriot missile systems equipment and support services.
• The UK-GCC FTA is expected to be signed by end of this year, stated Qatar’s ambassador to the UK, while also stating that the discussions are on its last mile. The UK expects the GCC FTA to increase bilateral trade by 16%.
• GCC’s share of emerging market USD debt issued in Q1 2025 (excluding China) increased to over 35% (versus 25% in Q1 2024), according to Fitch Ratings. Saudi Arabia’s debt capital market reached USD 465.8bn in Q1, up 16% yoy and with sukuk accounting for 60.4% of the total.

Saudi Arabia Focus

• Saudi Arabia’s real GDP expanded by 2.7% in Q1 2025, according to preliminary data, thanks to a boost from the non-oil sector (4.2% from 4.8% the quarter before) while the oil sector posted a decline after two quarters of growth (-1.4% yoy from Q4’s +3.5% gains). Non-oil sector growth remained resilient: growing by 4.2% in Q1, from the previous quarter’s 4.8%, and the government sector grewby 3.2% (Q4: 1.7%).
• Overall deposits in Saudi Arabia grew an average 9.0% in Q1 2025 while government deposits surged 15.4% mom in Mar. Credit growth consistently outpaced deposit growth for 14 months, with bank claims on the private sector up by 15.0% yoy in Mar and clocking in an average 14.2% in Q1. Net foreign assets ticked up in Mar, up 5.2% mom to SAR 1.62trn. Consumer spending accelerated in Mar, during the month of Ramadan & Eid break: point-of-sale transactions grew 13.5% mom and 10% yoy in Mar while ATM & e-commerce transactions accelerated by 23.6% mom and 31.9% respectively.
• FDI inflows into Saudi Arabia touched SAR 23.8bn in Q4 2024:this was up 16.7% qoq but down by 11.5% when compared to Q4 2023. Net FDI inflows stood at SAR 22.1bn in Q4. FDI inflow totalled SAR 85.3bn in 2024, down by 11.1% yoy; this amount is short of the annual National Investment Strategy target (of over SAR 100bn).
• The Saudi Minister of Investment revealed that FDI into Saudi Arabia’s Eastern Province accounted for 42% of the value of FDI stock; the Eastern Province in early 2025 had issued 5,456 active foreign investment licenses, supporting 53k+ jobs with a localization rate of 36%.
• Saudi overall exports declined by 4.5% yoy to SAR 1.145trn in 2024, despite the 13.1% rise in non-oil exports (including re-exports). By region, Eastern Asia was the largest export destination (36.5% of total) in 2024, followed closely by Western Asia (17%). Imports grew by 12.5% to SAR 873bn, resulting in a trade surplus of SAR 272.6bn. Eastern Asia was the largest source region (31.5% of total imports) and China alone accounted for 23.9% of total imports in 2024.
• Saudi Arabia amended its White Land Tax Law, raising the levy on undeveloped land to 10% of its value (from 2.5% before; applicable to land greater than 5,000 square metres) and introducing an annual tax on long-vacant properties without justified use.
• Saudi Arabia’s General Ports Authority signed a new agreement to develop a SAR 300mn logistics zone in Dammam, to serve as a central hub for the import and re-export of vehicles and spare parts. This falls under a larger SAR 10bn investment plan for 20 integrated hubs.
• Real estate brokerage contracts in Saudi Arabia surged by 97% yoy to more than 96k in Q1 2025: this works out to 44 per hour and 1066 per day.
• The PIF’s USD 1.25bn international sukuk, issued as part of its long-term capital raising strategy, was more than 6.5-times oversubscribed as orders crossed USD 9bn.
• Al Ula, the resort in Medina province, received 286k visitors in 2024, up by a fifth on 2023: about 72% of visitors were Saudi nationals. By 2030, the Royal Commission for AlUla expects up to 1.2mn visitors a year.
• The Saudi Export-Import Bank doubled its credit facilities last year, up 103% yoy to SAR 33.5bn, as export financing rose by 70% to SAR 12bn and credit insurance for exports surged 130% to SAR 22bn – supporting further development of non-oil exports from Saudi.

UAE Focus

• The IMF projects Abu Dhabi and Dubai growth to touch 4.2% and 3.3% respectively in 2025. In 2026, growth is estimated to rise further: by 5.8% in Abu Dhabi and 3.5% in Dubai. Abu Dhabi’s faster pace will result from oil sector recovery and ongoing infrastructure investments.
• ADNOC will supply India with cheaper US LNG cargoes from Jun-Jul, following a request from Indian refiners, allowing it to send more of UAE’s LPG to China. The price gap between Middle Eastern and US LPG has widened following the US-China trade war.
• International tourists into Dubai grew by 3% yoy to more than 5.3mn in Q1 2025. Visitors from Western and Eastern Europe dominated, accounting for 22% and 17% of total visitors, followed by the GCC (15%).
• Bloomberg reported that the US is easing restrictions on the export of high-end semiconductors to the UAE: this could be announced during US President’s trip to the GCC.
• Dubai International Airport welcomed 23.4mn passengers in Q1, up 1.5% yoy, thanks to a recovery in Chinese tourist numbers. Dubai Airports CEO disclosed that the impact from tariffs is not yet visible in passenger volumes (or any fluctuations), also confirming that the current location of the airport will become obsolete operationally once the move to Dubai World Central is completed (no deadline announced yet).
• The Chairman of Emirates Airlines disclosed that the company has comfortable cash reserves and will go ahead with an IPO if the government asks to do so. This was revealed in response to questions during the Arab Travel Market conference held last week.
• ADNOC raised USD 1.5bn from the sale of its 10-year dollar denominated debut sukuk, with the proceeds to be used for general corporate purposes.
• The value of real estate activity in Abu Dhabi surged by 27% yoy to AED 15.5bn in Q1 while the volume was up 11% to 3819. Top choices for property were in Saadiyat Island (AED 5.6bn) and Yas Island (AED 3.6bn).

Media Review:

IMF Regional Economic Outlook for Middle East & Central Asia, May 2025
https://www.imf.org/en/Publications/REO/MECA/Issues/2025/04/24/regional-economic-outlook-middle-east-central-asia-april-2025

Saudi Arabia signals it can live with lower oil prices, sources say
https://www.reuters.com/business/energy/saudi-arabia-signals-it-can-live-with-lower-oil-prices-sources-say-2025-04-30/

Trumponomics, tariffs and the global flight from the US: Oped in AGBI
https://www.agbi.com/opinion/markets/2025/04/nasser-saidi-trumponomics-tariffs-and-the-global-flight-from-the-us/

Dr. Nasser Saidi’s Al Arabiya interview (in Arabic) on the Trump’s tariffs & US expectations of an industrial resurgence
https://www.alarabiya.net/aswaq/videos/closing-bell/2025/04/30/شكوك-في-استعادة-الولايات-المتحدة-دورها-الصناعي-قبل-30-عاماً

Kuwait cracks down on cryptocurrency mining amid power crisis
https://www.reuters.com/business/energy/kuwait-cracks-down-cryptocurrency-mining-amid-power-crisis-2025-05-01/

FT’s Martin Wolf talks to Kenneth Rogoff: Trump is accelerating the dollar’s decline
https://www.ft.com/content/2c2bbc56-6f77-454a-8340-53fe0cab4f02 (podcast)
https://www.ft.com/content/a5ba2569-e8a2-4888-ac88-6808bbe9670a (transcript)

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