Economy Spotlight the Most Important Events and What's Coming 12-18 May/2025

Introduction:

The current issue of the Economy Spotlight Report discusses several important economic issues across all levels for major global economies, coinciding with the first round of Sino-US negotiations. It also reviews several economic data that markets are awaiting release this week.

Main keywords:

• China-American negotiations begin in Geneva, with investors optimistic about reaching solutions satisfactory to both parties.

• The US President makes a positive statement regarding his tariffs on China for the first time since announcing them.

• The Japanese economy is facing negative economic indicators that confirm the possibility of a contraction due to a decline in exports from some vital sectors.

• The US is awaiting inflation data this week after the latest Federal Reserve meeting.

• The global economy is on a strong path toward displacing Japan from its position as the world's fourth-largest economy.

• Europe is experiencing disparate economic data among its major economies.

Economy Spotlight. Major Economies:

First. The US Economy:

Last week, the US economy faced another round of tariffs imposed by US President Donald Trump, this time targeting the cinema sector under the pretext of protecting the American film industry.

Last weekend saw signs of positive news regarding trade agreements, particularly with the announcement of a trade agreement between the UK and US to resolve the tariff dilemma, in addition to news related to other countries.

The US and China began their meetings in Geneva, Switzerland, in a preliminary first step toward reaching a solution that would address the risks of a trade war between the two major economies.

Although neither side announced details regarding these talks, the US President stated that imposing 80% tariffs on Chinese goods seemed appropriate, marking the first time a mitigated alternative to the US tariffs, which had been imposed at approximately 145%.

China, meanwhile, is looking forward to the same 90-day exemption that the US granted to other countries during the negotiations, and analysts indicate that any reduction in tariffs or any positive signs will have a positive impact on investors, particularly in the financial markets. The Federal Reserve, which met last week, also kept interest rates unchanged, citing continued economic uncertainty due to tariffs, but praised the strength of the US labor market.

As for US economic data released last week, it was mixed. The services Purchasing Managers' Index (PMI) rose and remained above the 50 marks, which separates the recession from contraction. Meanwhile, the trade balance continued to record highs, with the trade deficit reaching $140.5 billion in March of this year.

The total deficit for the first three months of 2025 reached $394.2 billion, double the level it was in the first quarter of last year. Analysts attribute this increase to Americans' increased buying activity ahead of the implementation of US tariffs since Trump's return to office.

The US economy awaits crucial economic data, particularly regarding the US inflation rate (the Consumer Price Index and the Producer Price Index), in addition to retail sales data.

Second. European Economy:

The European economy remains in a state of suspense, particularly regarding the uncertainty surrounding the official position on negotiations with the US.

This is compounded by the weak performance of the services sector, which indicates a relative state of stagnation, indicating that the region remains in a state of economic fragility.

A survey showed that the Eurozone economy continued to expand in April, albeit at a slower pace amid weak demand. The Eurozone Composite Purchasing Managers' Index (PMI) also declined but remained above the benchmark (50).

Despite the European economy's recovery in the first quarter of this year, the beginning of the second quarter indicates a weak start. Optimism among services companies also declined, with the business expectations falling from 57.8 to 55.1, its lowest level since the end of 2022.

Export orders declined at the slowest pace in nearly three years, after manufacturers and service providers reported weak sales overall, coinciding with a decline in the new business index from 49.5 to 49.1. Despite these negative data, employment across the eurozone rose for the second consecutive month, an increase that analysts still view as marginal and not representative of the broader European economy.

Germany, the largest European economy, saw slight growth at 50.1, while France remained in contraction at 47.8.

The UK resumed interest rate cuts after a two-meeting pause, bringing interest rates to 4.25%, the lowest since March 2023. The Governor of the Bank of England hinted at the possibility of further cuts in the coming months.

This will largely depend on domestic economic conditions, as well as inflation, which fell for the second consecutive month to 2.6% last March.

Third. Japanese Economy:

The Japanese economy witnessed several economic indicators, most notably a 2.3% increase in exports during the first twenty days of April, a slowdown from the 4.2% growth recorded in March. This was attributed to the impact of US tariffs, particularly the slowdown in exports of automobiles, steel, and mineral fuels.

Income indicators, a key factor in Japan's domestic economic recovery, also declined. Japanese real wages fell for the third consecutive month in March, affected by rising inflation, despite consumer spending exceeding expectations.

Masakazu Tokura, president of the Japan Business Federation, urged the Japanese government to continue negotiations to ensure that all tariff measures are reviewed in the ongoing US-Japan talks.

In a recent report by the International Monetary Fund, it was noted that India is on track to overtake Japan as the world's fourth-largest economy by this year, with estimates indicating that India's GDP could exceed $4.187 trillion, slightly ahead of Japan's, which could maintain an estimated GDP of $4.186 trillion.

Fourth. Chinese Economy:

The Chinese economy recorded some negative economic indicators, most notably a decline in manufactured goods prices to their lowest level in six months, coinciding with a decline in consumer prices for the third consecutive month.

Analysts indicate that China still needs more stimulus to address the economic losses resulting from the effects of the reciprocal tariffs between China and the US.

The figures also indicate that the Chinese economy continues to suffer from a slowing housing market that has been declining since the end of 2021, along with rising household debt, which significantly impacts China's domestic investment environment.

Global investment banks, including Goldman Sachs, have lowered their forecasts for China's GDP for 2025 to below 5%, the rate announced by the Chinese government at its official meeting last March.

Economy Spotlight. Economic Calendar and What to Expect in the Markets Next Week:

Global markets will be awaiting the following economic data: