Economy Spotlight: The Most Important Events and What's Coming 2-9/02/2025

Introduction:

The global economy witnessed a different start last week, after the chaos caused by a Chinese application for an artificial intelligence chat program, an event that preceded a group of important matters in terms of meetings and major economic indicators around the world. In the “Economy Spotlight” report, we will discuss all these matters and what Trump concluded last week with by imposing the first customs tariffs that he promised during his election campaign. We will also review the events and indicators that await us during the current week.

Economy Spotlight. Major Economies:

First. The US Economy:

The US financial markets began with news that negatively affected various indicators and stocks of giant companies, after the uproar caused by an artificial intelligence chat application, as the Chinese startup said that it designed the application, which was called DeepSeek, at a cost of no more than $6 million and in just two months, which raised doubts among investors in giant technology companies that have always indicated the billions of dollars needed to develop their artificial intelligence technology.

In terms of customs tariffs, Trump implemented an executive order related to imposing customs duties of 25% on goods entering the country from Mexico and Canada and 10% on imports from China, with the White House indicating that these tariffs will go into effect on Tuesday of this week.

Many analysts have indicated that this measure may have an impact on the financial markets, which have recorded record numbers since Trump's victory and even after his inauguration despite all his promises of customs duties that may harm inflation and postpone the reduction of interest rates for a longer period than expected, which is theoretically negative for the financial markets. As for the most important economic events, they were represented by the first decisions of the US Federal Reserve for the new year; where the interest rate was fixed at 4.5%, with Federal Reserve Chairman Jerome Powell saying that the time has not yet come to reduce interest rates and that economic data on inflation must be awaited, especially since inflation rates are still higher than the required rate of 2%.

In the latest inflation indicators on the US side, the Personal Consumption Expenditures Price Index for December was issued, which the US Federal Reserve prefers in making its decisions, as the Personal Consumption Expenditures Price Index rose by 2.6% on an annual basis, while the Core Personal Consumption Expenditures Index reached 2.8%, which is in line with expectations but is much higher than the Federal Reserve's target of 2%, which supports the idea of ​​the Federal Reserve postponing future interest rate cuts.

As for the economic indicators that the US economy witnessed last week, they were as follows:

• The new home sales index for December witnessed an increase from 674 thousand units to 698 thousand units.
• The consumer confidence index for January decreased from 109.5 after adjustment to 104.1.
• US crude oil inventories rose significantly from a deficit of 1 million barrels to a surplus of more than 3.4 million barrels.
• Q4 GDP fell from 3.1% to 2.3%.
• Unemployment claims fell from 223,000 to 207,000.

Second. European Economy:

The eurozone economy unexpectedly stalled in the fourth quarter, increasing pressure on the European Central Bank to cut interest rates more aggressively, after GDP growth slowed less than expected to 0.9% in 2024 from its own modest 1% forecast.

The decline in the German and French economies, the two European economic giants, may explain the eurozone’s overall decline, with the German economy contracting by 0.2%, meaning Germany is in a deep economic crisis, confirming what the head of the BDI, the German industry association, said when he said that the German economy is in a deep economic crisis.

France’s economy also contracted slightly during the same period. Data earlier on Thursday showed that Italy’s economy stabilized on a quarterly basis.

In Sweden, the Riksbank cut its main interest rate last week to 2.25% from 2.50% in an effort to boost sluggish economic growth, stressing that it is ready to act according to indicators of inflation and economic activity.

Third. Japanese Economy:

The Japanese economy is still looking at the tariffs imposed by the US President on China with caution and anticipation, as the chief economist in the Japanese government, Tomoko Hayashi, said that the trade war between America and China may negatively affect the Japanese economy, specifically because of what Japan depends on importing from China and is necessary to produce what it exports to America.

As for economic indicators, the Ministry of Economy, Trade and Industry in Japan issued preliminary data on the country's industrial production for December, which showed a recovery that exceeded expectations in Japanese industrial production, as it grew by 0.3% on a monthly basis compared to November, after recording a contraction of 2.2% in the previous month, following a revision of the reading from a larger contraction of 2.3%.

Industrial production is a key indicator of the health of the economy in Japan, as it responds quickly to fluctuations in the business cycle and is linked to consumer conditions such as employment levels and profits.

As for the inflation rate in Japan, core inflation in the Japanese capital reached 2.5%, recording the fastest annual pace in about a year, exceeding the central bank's target of 2% and maintaining market expectations for further interest rate hikes.

Fourth. Chinese Economy:

The Chinese government has denounced the US move to impose a 10% tariff on Chinese imports that it has long threatened while leaving the door open to talks with the US that could avert a worsening conflict.

In China’s top economic indicators for the past week, the official purchasing managers’ index for January came in at 49.1, compared with expectations for above the 50 marks between boom and contraction.

In addition, China’s industrial profits in 2024 fell 3.3% from a year earlier, extending the decline to a third straight year.

The economic data suggests how difficult it may be for the Chinese government to achieve a sustainable recovery in growth.

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

Global markets will be awaiting the following economic data: