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Category: Market Insights and Economic Outlook

  • Eurozone Recession Fears Grow as German Factories Shut Down

    Eurozone Recession Fears Grow as German Factories Shut Down

    Eurozone recession fears escalate as more German factories shut down July 18, 2025. Eurozone concerns that recession is on the way have deepened with another wave of German factories announcing closures and cutbacks.

    The industrial heartland of Europe is struggling with a combination of stubbornly high energy costs, a global slump in demand and the growing effect of international trade tensions that are threatening to darken the outlook for the bloc’s economy.

    Germany’s Industrial Engine Stalls

    And Germany, long the powerhouse of Europe’s economy and highly dependent on manufacturing and exports, is leading the way in this industrial slowdown. Recent data, such as the PMIs, which have remained below the 50-point mark separating expansion from contraction, are indicative of continued deterioration in activity levels.

    The last of the July PMI reports will be published early next month, but anecdotal evidence from the field is bleak, with reports of falling new orders and lower capacity use.

    A few things help explain why we’re seeing such a severe downturn:

    • High Prices for Energy: Yet, while industrial energy prices in Germany have moderated somewhat from their peak levels, they are well above those in competitors like the U.S. and China. Among the most seriously hit are the energy-intensive sectors, such as chemicals, steel and glass, which are left with no other option than to reduce production or move abroad. Germany’s previous decision to wind down nuclear power and its previous dependence on cheap Russian gas have left it more exposed to energy price shocks.
    • Sluggish Global Demand: The global economic-growth slowdown, particularly in key markets such as China, and a retarded level of demand overseas have exacted a real toll on German exports. With global trade splintering and demand for manufactured goods cooling, Germany’s export-dependent industries are struggling to find buyers.
    • Deepening Trade Wars: Adding to this is the froth of an intensifying US tariff regime under President Trump. With tariffs threatened – or already imposed – on more products and more countries, German exporters confront added costs and risk, adding even more drag to international trading volumes.

    These will play to a visible de-industrialisation, with more and more German companies either going bankrupt or simply moving abroad with their production.

    Broader Eurozone Implications

    To be sure, German weakness inevitably radiates across the entire Eurozone. Germany’s industrial malaise is a threat to the entire bloc; its manufacturing output and demand for intermediate goods spill over directly into supply chains and economic activity in surrounding countries.

    Although the European Central Bank (ECB) has started cutting rates, rate cuts have limited effectiveness in stimulating an economy grappling with domestic structural and external headwinds. The Eurozone is already expected to turn in only modest economic growth in 2025 (in the range of 1.1%-1.3%), and the deepening German industrial contraction may press the entire region to or even into a technical recession.

    Analysts are also becoming increasingly jittery about “stagflation” — stunted growth and chronic inflation. The current trade tensions and the disruptions to the global supply chain could keep prices high, even as economic activity slows, leaving policymakers with a stubborn problem.

    As Eurozone ministers of finance and central bankers follow the situation, the rapidly souring industrial outlook in Germany offers a flashing red warning light about the economic security of the region as a whole.

  • Bank of England cuts rates unexpectedly – pound crashes to 2021 lows

    Bank of England cuts rates unexpectedly – pound crashes to 2021 lows

    The Bank of England (BoE) rattled the global currency market today, July 17, 2025, when it shocked the world with an unanticipated 25-basis point reduction in its benchmark interest rate to 4.00%.

    The move, which did not take place at the Monetary Policy Committee’s (MPC) typical monthly get-together, caused the pound to fall sharply and plunge to the lowest levels in 2021.

    The Bank of England’s unexpected rate cuts have sent the pound crashing to its lowest levels since 2021. Discover the implications for the economy.

    The Surprise Decision and Market Response

    BoE’s MPC had been widely expected to keep rates unchanged at its next scheduled meeting on August 7, with market consensus suggesting a first cut in late 2025 or early 2026 – especially after the release of UK inflation figures in July, which showed an unexpected rise to 3.6% in June.

    But the bank attributed its unscheduled move to growing concerns over the UK’s economic prospects in general and the effect of global trade tensions and slowing growth in particular.

    “In light of the increasing downside risks to the global and U.K. outlooks and with domestic inflationary pressures remaining subdued, the Committee agreed that it was appropriate to take some action to support demand in the U.K. economy and to ensure that the recent fall in inflation did not undershoot the 2 per cent medium-term inflation target,” the BoE said in a brief statement. This is an even more pessimistic tone than had been previously communicated.

    In response, the pound sterling (GBP) tumbled versus all of its peers in the spot market. Versus the dollar, GBP/USD lost ground rapidly, closer to its 2021 Alice lows and the 1.28-1.29 level. The pound was hit hard against the euro. This drop is a clear reflection of investor concern over the unforeseen move, expressing those fears over the UK’s economic health and a greater likelihood of additional monetary easing.

    Why the Early Cut?

    The BoE’s decision, which followed the Fed’s stance by a day, was said to be driven by domestic considerations such as growth and employment, yet market observers are searching for the actual catalyst for such an off-cycle move. Possible factors include:

    • Fading Growth Outlook: While some resilience became apparent, the latest data would have still suggested that a sharper contraction in activity or stagnation was taking place, with recent US tariffs on UK trade adding to the pressure.
    • Rising Forces in Trade Wars: We might add the incipient trading war that would evolve between the US and most of its key trading partners, which could have already exacerbated a downside threat to UK exports and economic stability that seemed likely to have been modelled before.
    • Breaking Away From Other Central Banks: The European Central Bank (ECB) has been lowering rates, while the Federal Reserve has held steady. The BoE might be getting ahead of the curve to avoid a firmer pound from undermining UK exports.
    • Consumer Spending Worries: The recent publication of inflation data, though higher, could have hidden weaker consumer confidence or spending power – something the BoE tried to tackle.

    Implications for the UK Economy

    The surprise rate cut is a double-edged sword for the UK economy. On one hand, it may offer a long overdue boost to borrowing and investment as a way of helping support businesses and homeowners who have been clobbered by high mortgage rates.

    However, with the collapsing pound, imports will become dearer, which may prompt a rise in inflation and consumer purchasing power getting hit.

    The cut brings immediate respite for homeowners on a variable-rate mortgage, but savers are set to experience a further decline in returns. Import-dependent businesses will face higher costs, and exporters might benefit from a currency that is weaker.

    The BoE’s shock is a turning point in its monetary policy, showing up with solutions to counter economic headwinds. The BoE’s next MPC meeting is scheduled for August 7, and analysts will then be looking for more detailed forecasts and possible hints at the central bank’s forward guidance in light of this week’s speech. Sources

  • Nvidia’s Huang hails Chinese AI models as “world class”

    Nvidia’s Huang hails Chinese AI models as “world class”

    In a major diplomatic and business move, Jensen Huang, CEO of leading AI chipmaker NVIDIA, praised Chinese-developed AI models as “world class” today, July 16, 2025.

    His comments at the opening ceremony of the third China International Supply Chain Expo (CISCE) in Beijing were reported one day after NVIDIA said it had received U.S. government permission to sell its H20 AI chips to China.

    Explore how Nvidia’s Huang hails Chinese AI models as “world class”, emphasising their significant contributions to artificial intelligence innovation worldwide.

    Praising Chinese Innovation

    Huang singled out AI models created by Chinese companies such as DeepSeek, Alibaba and Tencent as “world class”. AI has become “essential infrastructure, like electricity”, he said, and is “transforming every industry, from scientific research and health care to energy and transportation and logistics.”

    Meanwhile, the open-source AI landscape in China serves as a “catalyst for worldwide development”, according to the CEO of NVIDIA, who has welcomed the country’s rapid progress in AI development.

    This endorsement by one of the world’s most influential technology leaders further solidifies the rapid maturation of China’s AI ecosystem, which has achieved big gains in generative AI, notably in non-reasoning models. Chinese producers also innovate, and models such as DeepSeek V3 0324 have become popular worldwide.

    Navigating the US-China Tech Landscape

    Huang’s visit to China, his third of this year, comes at a sensitive time for Nvidia, which is trying to steer its way through the knotty and often combative entanglement between the world’s two biggest economies, which are jostling for pre-eminence in AI and other state-of-the-art technologies.

    The praise for Chinese AI models, along with the now-resumed sales of the H2O chips, indicates an attempt to salvage relationships and still serve the very important Chinese market investment strategies. The H20 chip, an adaptation of NVIDIA’s high-end AI accelerators, had been built to adhere to previous US export regulations.

    In the wake of enhanced legislation, its sales were suspended in April 2025. But on July 15, NVIDIA said it received confirmation from the U.S. government that licences would be provided for the export of H20s into China, with shipments set to resume “shortly”. NVIDIA is building a new, fully compatible model RTX Pro GPU for the Chinese market for purposes of nickel AI applications.

    Balancing Interests and Future Outlook

    Huang has long maintained that curtailing exports would undermine U.S. leadership in AI by limiting American companies’ ability to sell to developers around the world, including the large number of AI researchers in China.

    His recent contacts with US President Donald Trump and other top policymakers purportedly involved talking about not allowing American technology to become the worldwide standard. The freshly restored permission to sell H2O chips – plus Huang’s public praise of Chinese AI – is an example of the relatively carefully negotiated relationship that Nvidia must maintain.

    It is designed to take advantage of the huge and fast-moving Chinese market while remaining compliant with US export controls. The political tactic also underscores the interconnected reality of the global AI industry and tech giants’ overtures to political enemies in the name of tech progress. In the months ahead, we will see how this delicate balance influences the state of the market and the overall landscape of AI globally.

  • Japan bond yields hit multi-decade high as fiscal fears mount ahead of election

    Japan bond yields hit multi-decade high as fiscal fears mount ahead of election

    JGB yields have climbed to multi-decade geographical peaks, with the 10-year benchmark yielding more than 1.595% on Tuesday, July 15th, 2025, a level not seen since just before Halloween, October 2008.

    Japan’s bond yields reach multi-decade highs amid rising fiscal concerns ahead of the upcoming election. Discover the implications for investors and the economy.

    The spike in yields, especially on the far end of the curve, is a reflection of growing investor concern over Japan’s fiscal state and the prospects for additional government spending as preparation for the pivotal Upper House election on Sunday, July 20, heightens.

    Record Highs and Market Instability

    The 30-year JGB yield, a bellwether for long-term fiscal health, surged to an all-time 3.195% on Tuesday, and the 20-year yield rose to 2.65%, its highest since November 1999.

    The rapid movement reflects rising strains in a Japanese government bond market that has been unusually stable in the past, anchored by the BoJ’s ultra-accommodative monetary policy. The rapid rise in yields is a troubling one for a country with the largest public debt-to-GDP ratio in the developed world, which comes in at around 250%.

    Although the majority of Japan’s debt is held at home, any slackening in appetite from institutional buyers, who fund themselves at a spread over the JGB market, along with the BoJ’s ongoing gradual reduction of bond purchases, is increasing the vulnerability of the market.

    Fears About the Economy Before the Election

    The approaching race for the Upper House is a big factor behind the bond market sell-off. Japanese Prime Minister Shigeru Ishiba’s ruling Liberal Democratic Party (LDP) and its junior coalition partner Komeito are facing a difficult challenge, with local polls indicating they will struggle to win a majority in the chamber.

    The possibility of a weakened ruling coalition or political continuity is stoking fears about continued budget generosity. Opposition parties, riding the wave of platforms that promise to tackle surging living costs, are pushing for steps like consumption tax advisory reductions. Such policies, although popular with voters, would also widen the fiscal deficit, making Japan’s already stretched finances even worse.

    “As the volume is building around noise going into more fiscal spending, we took an underweight on Japan in general,” said Ales Koutny, head of international rates at Vanguard, speaking to the UK bond market’s headaches in recent years.

    BoJ’s Delicate Balancing Act

    The Bank of Japan is in a ticklish situation. Following its unconventional yield curve control (YCC) policy exit and, now, slow interest rate hikes (the cash rate sits at 0.5%), the central bank targets a sustained 2% inflation.

    But ramped-up fiscal spending could unravel all of this and leave the BoJ with little choice but to engineer monetary tightening faster than the pace most households and firms would be happy with. Even though the Ministry of Finance tried to cool things down by stating that it intended to cut 20-, 30- and 40-year debt sales to help mend supply-demand imbalances, the real issue is fiscal.

    “If a demand-less market continues and if investors see no rate hikes within this fiscal year, JGB volatility will go up, especially in the long end,” said Kentaro Hatono, a fund manager at Asset Management One.

    Everything now depends on the result of Sunday’s election. A major defeat for the ruling coalition may lead to another sell-off in super-long JGBs as investors bet on a massively swollen government deficit.

    The surge in yields, which have been rising steadily since the summer, has the potential to raise the cost of corporate loans and mortgages, in turn dampening domestic economic growth. Japan’s bond market readies for a volatile phase, with the election set to determine its fiscal course for years.

  • Global Markets Brace for US Inflation Data and Tariff Impacts on July 14, 2025; India’s Financial Savings Decline

    Global Markets Brace for US Inflation Data and Tariff Impacts on July 14, 2025; India’s Financial Savings Decline

    Global financial markets wade into today, July 14, 2025, nervously awaiting a report on key US inflation data and struggling to understand the expanding ramifications of intensifying US tariff actions.

    Putting this building macroeconomic backdrop on a cautious stance broadly, across equities, bonds and currencies, the same is a concerning trend of falling household financial savings in India, as revealed by another report alongside.

    U.S. Inflation Data in Focus and Market Response

    US CPI for the month of June 2025 is reportedly out July 15. The official CPI report is due out for June 2025 tomorrow, but early signs and positioning are making news today. The May 2025 CPI press release – released on June 11 – indicated headline inflation of 2.4% year over year and core CPI — excluding food and energy — of 2.8%.

    On the horse-race front, analysts are eagerly awaiting the June numbers, which some predictions suggest may nudge up a bit. Traders are more attuned than usual to surprises in inflation readings because it will shape the outlook for the Federal Reserve’s monetary policy.

    Inflation ticking higher than expected would compound worries about a Fed that will prioritise keeping rates higher for longer, keeping a lid on equities and boosting the dollar. On the flipside, a softer inflation print would give some respite and hopes of an earlier interest rate cut towards the later part of the year.

    The popping of the precious metals with gold prices oscillating is a paying reflection of the volatility that already exists.

    The collateral damage of U.S. tariffs

    Adding to the inflation picture is the Trump administration’s increasingly protectionist US tariff policy. Added to that, the past few days have brought a level of trade antagonism not seen in some time: new tariff warning letters dispatched to more than 20 countries, including major economic partners such as Japan, South Korea, Mexico and the European Union.

    Tariffs between 20% and 50% are scheduled to be imposed on August 1, 2025, if certain bilateral trade agreements are not in place. Most analysts also agree that the tariffs will instead be a “stagflationary shock” to the US economy, which means that the US consumer will get hit most as they pay more for imported goods.

    In its July 9, 2025 report, the Swiss Re Institute predicted that US tariffs would suppress global GDP growth to 2.3 per cent in 2025 from 2.8 per cent in 2024. Policy uncertainty alone in Europe is likely to keep economic activity sluggish.

    The tariffs also threaten to dislocate global supply chains, increase long-term inflation and undermine confidence in the US as a “safe haven” for global capital. The prospects of counter-tariffs by affected countries further compound the instability, making matters more difficult for global trade and investment Strategies.

    India’s Declining Financial Savings

    India’s own domestic economic battle is playing out against this complicated global backdrop. India’s household financial savings dropped for the third consecutive year to 18.1 per cent of GDP in FY24, CareEdge Ratings said in a report released on June 15, 2025.

    This is down from 32.2% during FY15 and is in part the result of an increase in household financial liabilities that have almost doubled during the past 10 years, reaching 6.2% of GDP as households continue to use credit to meet their consumption needs.”

    Though the Reserve Bank of India maintains a high interest rate (8.05% for July–December 2025) on Floating Rate Savings Bonds and the Employees’ Provident Fund Organisation (EPFO) has already credited an 8.25% interest for FY25, the overall investment trend in household savings is a worry. Such a decrease in remittances could affect the availability of internal capital for investment and even the long-term stability of the economy.

    The immediate consequences of US economic policies and the continued threat posed by inflation, trade protectionism and other global challenges, as they play out in international markets, are being felt at home in economies like India, and absorption of these changes is becoming increasingly complex.

  • NVIDIA and AMD hit record highs after bullish Q2 earnings reports

    NVIDIA and AMD hit record highs after bullish Q2 earnings reports

    Chip behemoths NVIDIA and Advanced Micro Devices (AMD) are getting frothy with investor excitement, both seeing record stock prices after soaring Q2 2025 financial results.

    The strong numbers highlight ongoing strong demand for their high-performance computing and AI-driven technologies, particularly in the data centre and artificial intelligence markets, which are both seeing strong growth.

    NVIDIA’s Reign Of Dominance Carries Over To Record Data Center Revenue

    NVIDIA (NASDAQ: NVDA) – the AI-chip leader – crushed its second-quarter fiscal 2025 earnings. The company reported record quarterly revenue of $30.0 billion, representing a huge 122 per cent rise from the same quarter a year ago and a hefty 15 per cent increase from the prior quarter.

    That jump was powered largely by its data centre segment, which reported record revenue of $26.3 billion, a 154% increase from a year earlier. CEO Jensen Huang discussing the sustained high demand for NVIDIA’s Hopper architecture and “amazing” enthusiasm for its upcoming Blackwell platform.

    He said the world’s datacentres are “doing a full-on refresh of the computing stack with accelerated computing and AI”, with NVIDIA on the edge of that upgrade. It also noted robust adoption of its Spectrum-X Ethernet networking platform for AI and significant scaling of its NVIDIA AI Enterprise software, indicating capabilities as a full-stack platform provider.

    NVIDIA’s similar stock run – up 88% from an early-April low and 20% from the beginning of 2025 – has it now briefly pushing past a $4 trillion market cap. Analysts remain bullish, pointing to still strong demand for its GPUs as big tech companies plough ahead on plans to build out AI infrastructure.

    AMD’s Strategic Investment in AI and Data Centers Is Paying Off

    Well, surprisingly not to be outdone, Advanced Micro Devices (AMD) also had a strong performance for the quarter ended 2Q 2025 – coming out better than what Wall Street was looking for. Although individual Q2 2025 results are usually released in early August (in accordance with their previously announced August 5th schedule), the bullish sentiment is due to robust Q1 results and hopeful forward guidance that shot the stock to all-time high territory.

    A big driver has been AMD’s focus on expanding its product portfolio and market presence in AI and data centre technologies. Its data centre small business segment has also enjoyed robust year-over-year growth on the back of the rollout of AMD Instinct AI accelerators and robust sales of its EPYC CPUs. Despite continuing headwinds like export controls in a few markets, AMD has shown that it can win share in key markets.

    Investor confidence that the company can execute on its vision, especially given strong customer interest in new products, has returned. AMD’s share price has also enjoyed impressive gains, with the markets clearly buying into its long-term growth trajectory in the cutthroat chip industry.

    AI Demand Fuels Semiconductor Boom

    That both NVIDIA and AMD are trading at all-time highs is a reminder of the ravenous global hunger for modern semiconductor technology, especially the sort that fuels AI.

    As companies around the world spend heavily on generative AI, high-performance computing, and data centre infrastructure, the two powerhouse chip makers are well positioned to capture much of that market and innovate in the years ahead.

    This is the continuation of that secular trend I wrote about here and here. (Look, if you haven’t been a believer in semiconductors, you haven’t been paying attention.)

  • Global Economy Set for Weakest Run Since 2008 Outside of Recessions

    Global Economy Set for Weakest Run Since 2008 Outside of Recessions

    Washington, D.C. The World Bank’s Global Economic Prospects report predicts that this year will see the world economy slow to its weakest level since the 2008 financial crisis, but that a global recession can be prevented if rising trade disputes are settled.

    Released on June 10, 2025, the sobering outlook points to widespread economic downgrades and a dire outlook for the remainder of the decade, particularly for developing economies.

    A Decade of Reduced Development

    Worldwide growth is poised to decelerate to 2.3 per cent by 2025, a shade higher than half a point below its original forecast at the end of last year. It is not being predicted that there will be a full-blown global recession – but if forecasts prove accurate for the next two years.

    The average global expansion in the first seven of the 2020s would be slower than in any decade since the 1960s. This extended period of sluggish growth implies that headwinds for global economic dynamism remain entrenched.

    Causes of the Recession

    Elevated trade tensions and policy uncertainty are the main factors in the gloomy sentiment. The report indirectly points to an increase in trade barriers – such as tariffs – that have increased costs and prompted retaliatory steps around the world.

    It’s holding back investment and demand for capital goods, which account for over a quarter of aggregate demand. There are other issues beyond trade, including tighter labour markets driving inflation and a slowdown in global trade volumes, at work, too. Investment growth, meanwhile, has also decelerated despite record high levels of global debt.

    Impact on Developing Economies

    The slowing is especially troubling for emerging economies. Average annual growth within these countries has steadily ratcheted down over the past three decades, from north of 6% in the 2000s to below 4% in the 2020s.

    This trend reflects the fall in world trade. The report forecasts a deceleration this year in almost 60% of all developing economies; their rate of growth is unlikely to exceed 3.8% in 2025. This is more than a percentage point lower than the decade average. Slower growth mechanically undermines the ability of these countries to generate job creation, extreme poverty reduction and per capita income convergence with the advanced world.

    Average per capita income in developing countries is expected to grow by 2.9% in 2025 – 1.1 percentage points lower than the average of the twenty-first years of the century. But the World Bank cautioned that to the extent that developing economies (excluding China) grow at a projected 4% GDP rate in 2027, these and other countries would need another 20 years to recover their pre-pandemic growth trajectory.

    Path Forward: Cooperation and Reform

    The World Bank is calling on policymakers to act decisively to help to combat these risks. Wrapping up current trade disputes, for example, by cutting tariffs to half of their level in May 2025, would raise global GDP by an average of 0.2 percentage points in 2025 and 2026. The report urges renewed progress on integration with partners, further pro-growth reforms and strengthening fiscal resilience.

    “Dialogue between the major economies could lead to a more stable and prosperous path for the world economy”, said World Bank Group Chief Economist Indermit Gill, who added that a cooperative workout is necessary more than ever, and the world urgently needs to cut down on trade barriers and policy ambiguity.

    “For the developing countries, the report recommends that investment and trade links should be fostered, diversified trade should be sought and domestic revenues mobilised and customised to spend more on vulnerable households.

    The message is both stark: the challenges are immense – but collective action and reforms that are strategic can still help guide the world economy to a more resilient and equitable future.

  • China CPI inflation rises marginally in June, PPI shrinks for 33rd month

    China CPI inflation rises marginally in June, PPI shrinks for 33rd month

    China’s National Bureau of Statistics (NBS) today, July 9, 2025, released its latest inflation figures, painting a mixed economic picture. The China CPI inflation saw a marginal 0.1% year-on-year rise in June, reversing four months of declines.

    However, the China PPI (Producer Price Index) continued its prolonged slump, contracting by 3.6% year-on-year, marking the 33rd consecutive month of shrinkage at the factory gate. This divergence highlights the ongoing challenge for policymakers: stimulating domestic demand to address deflationary pressures while managing industrial overcapacity.

    CPI’s Marginal Rebound: A Glimmer of Hope?

    Consumer prices in China edged up in June, offering a slight glimmer of hope for policymakers. The China CPI inflation registered a 0.1% year-on-year increase for June, snapping a four-month streak of declines, though it dipped 0.1% month-on-month. According to the NBS, this rebound is largely attributed to the government’s pro-growth fiscal and monetary stimulus packages aimed at boosting domestic consumption.

    A significant factor was the recovery in prices of broad industrial consumer goods, which saw their year-on-year decline narrow. Crucially, core CPI (excluding volatile food and energy prices) continued its upward trend, reaching 0.7%, marking a nearly 14-month high and suggesting some underlying improvement in demand.

    Specific categories contributing to the rise included daily necessities (up 0.8% year-on-year) and clothing prices (up 0.1% year-on-year). Even prices for gold and platinum jewellery saw significant increases, reflecting a shift in consumer spending patterns.

    PPI’s Prolonged Deflation: A Deep-Seated Challenge

    In stark contrast to the consumer side, China’s PPI continued its prolonged deflationary trend, dropping 3.6% year-on-year in June. This decline widened from May’s 3.3% fall and marks the 33rd consecutive month of contraction at the factory gate, representing the steepest fall since July 2023. On a month-on-month basis, the PPI decreased by 0.4%.

    This sustained deflation at the industrial level is primarily driven by subdued domestic demand and cautious consumer confidence. Analysts and the NBS point to persistent industrial overcapacity, which has led to fierce “price wars” across various sectors as manufacturers compete for limited demand.

    Additionally, lower energy prices, partly due to the growth of solar, wind, and hydropower, have reduced power generation costs. Pressure on export-reliant industries from slowing global trade and rising protectionism further exacerbates the decline.

    The implication of this deep PPI deflation is a squeeze on corporate profits, potentially leading to reduced investment, employment, and a broader drag on economic growth.

    Divergent Trends and Economic Implications

    The simultaneous marginal rise in CPI and prolonged shrinkage in PPI presents a complex paradox for China’s economic management. While a positive CPI is a welcome sign for consumption and suggests that stimulus efforts are having some effect on household spending, the deep PPI deflation indicates that manufacturers are struggling to pass on costs.

    This reflects fundamental weaknesses in industrial demand and highlights the challenge of overcapacity. The Chinese government continues to roll out efforts to stimulate the economy, including consumer goods trade-in policies and e-commerce promotions aimed at boosting domestic consumption.

    However, the People’s Bank of China (PBOC) faces a delicate policy dilemma: how to stimulate demand without exacerbating industrial overcapacity or introducing new financial planning. This ongoing factory-gate deflation in China could, however, have a broader impact, potentially helping to ease global inflation pressures, particularly for commodity prices, as China exports its excess supply at lower costs.

    Outlook and Policy Outlook

    While the marginal CPI rise offers a glimmer of hope for a demand recovery, the prolonged China PPI shrinkage signals that the Chinese economy is far from a robust and balanced recovery. The underlying issues of weak industrial demand and overcapacity remain significant headwinds.

    The focus for policymakers will continue to be on strengthening domestic demand, addressing industrial overcapacity through structural reforms, and fostering a more balanced economic structure to ensure sustainable growth and alleviate persistent deflationary pressures. For expert analysis on China’s economic outlook and policy challenges, consider reports from the Council on Foreign Relations.

  • Global Economic Outlook Dampened by Trade Protectionism on July 8, 2025; Central Banks Maintain Vigilance

    Global Economic Outlook Dampened by Trade Protectionism on July 8, 2025; Central Banks Maintain Vigilance

    As of its most recent readings, which were published, the Global Economic Outlook Dampened by Trade Protectionism on July 8 stresses the overall impact caused by the increased introduction of trade protectionist measures, so things are not going to get much better anytime soon.

    In this difficult environment, central banks around the world face the dilemma of having to be vigilant while trying to strike the right balance between supporting growth and controlling inflation in a time of greater uncertainty. The tug of war between these forces is charting a treacherous and uncertain course for the world economy.

    The Potential for Global Growth Is Threatened by Protectionism

    Trade protectionism in the form of tariffs, non-tariff barriers, and retaliation is resulting in a bleak global economic outlook. Almost all of the economic leading indicators have released updated projections recently, and they all agree there will be a negative effect on global trade volumes and GDP.

    If we take the World Bank, for example, they forecast global GDP growth to drop to 2.3% for 2025, a substantial revision downwards largely due to rising trade barriers and policy uncertainty. This has resulted in weakened corporate confidence, broken international supply chains and depressed investment.

    Enterprises are suffering from high costs and uncertain market availability, and that combination has quite naturally discouraged cross-border investments. The BIS emphasized that trade-related headwinds are strengthening established trends toward economic balkanization, intensifying a weakening of economic and productivity growth that has now lasted the better part of a decade.

    Central Banks Stay on Alert Despite Conflicting Pressures

    In such an environment, central banks are crucial and are “vigilant” or “closely watching” data and willing to act forcefully. They now face a twin challenge of a slowdown in growth, exacerbated by trade protectionism, that could also push them to ease monetary policy.

    On the other hand, persistent inflationary pressures, possibly exacerbated by trade barriers driving up import costs, prevent them from loosening policy too rapidly. The general theme is one of caution, however, and central banks are taking slightly different stances depending on their own domestic economies.

    Take, for example, the European Central Bank (ECB), which has acknowledged that while disinflation is in progress, the continued intensification of trade pressures complicates the inflation horizons, causing them to adopt a data-dependent approach to politics.

    The vigilance is important as to how trade-offs are balanced to support economic activity and ensure price stability; it can be a difficult one to make. For more on the ECB’s monetary policy and outlook, see the European Central Bank’s official statements and publications.

    Navigating the Delicate Balance: Growth, Inflation, and Policy Uncertainty

    Keeping vigil for central banks, or so it is frequently the case, entails walking a tightrope. Should global growth continue to decelerate because of trade protectionism being sustained, the chorus calling for rate cuts will grow louder.

    Yet if inflation proves more persistent or speeds back up again via supply shocks caused by trade disruptions or higher import prices, rate hikes could still be in play. The uncertainties created by trade protectionism are very challenging when taking such decisions, with little firm ground upon which to base economic projections and policy decisions.

    This uncertainty also applies to financial markets and consumer spending, making the calculus even more complicated. Businesses are reluctant to make job-creating investments, while consumers may put off big purchases, dragging on economic momentum.

    Even more than in the Vietnam era, central banks need to understand the changing landscape and ways in which trade policy affects import prices and overall demand to better achieve their mandates.

    Outlook remains cautious, policy cooperation crucial

    So long as trade protectionism is still on the table, the short-term global economic picture is going to look dim. Meanwhile, international financial companies are also cautious, as risks on the downside are high.

    International cooperation is the key means to solve trade rows. Returning to more market-orientated policies, including encouragement of private investment, could have a substantial positive effect on the economic environment by repairing confidence, supply chains and capital appreciation.

    Central banks are here to stay, adjusting their monetary policy as new data comes in, striving for price stability as well a sustainable growth. It will take their alert and data-oriented approach to navigate economies through such uncertain times, but also global policy cooperation for more resilient market insights and economic outlooks in the future.

  • India’s Resilient Economic Growth and Easing Inflation: Aiding RBI Policy Flexibility in July 2025

    India’s Resilient Economic Growth and Easing Inflation: Aiding RBI Policy Flexibility in July 2025

    India remains the world’s fastest-growing large economy, as strong GDP growth accompanies a marked reduction in the rate of inflation. That is a good combination which is giving greater policy flexibility to the Reserve Bank of India (RBI) to sacrifice higher interest rates for some growth-inducing steps with an optimistic India’s Resilient Economic Growth and Easing Inflation: Aiding RBI Policy Flexibility in July 2025

    Consistent GDP Growth

    The Indian economy remains robust as its real GDP is envisaged to have risen by 6.5 per cent in FY 2024-25, the fastest among the leading global economies. This growth momentum is expected to carry on till FY 2025-26, the Reserve Bank of India (RBI) said.

    Other global and domestic institutions, such as the United Nations (6.3% in 2025) and the Confederation of Indian Industry (CII) (6.4% to 6.7% for FY26), reflect this optimistic note. This ongoing performance underscores India’s structural economic strength, which is needed for overall economic stability in an environment of global vagaries.

    Inflation Hits Lowest Levels in Years

    One important part of this supportive setting is that there has been a great fall in inflation. The year-on-year CPI for May 2025 declined to an impressive 2.82% – the lowest since February 2019. What is more, the Consumer Food Price Index (CFPI) has trended upwards by 0.99% in May 2025; the food inflation has been the lowest since October 2021.

    This sharp food price cooling flow, which translates as bumper farm harvests to efficient supply chains, brings dramatic relief to consumers and small businesses and signals a healthy economy. You can find detailed reports on India’s CPI data in The Economic Times.

    The RBI’s Increased Flexibility in Policy

    India’s continued declining inflation view India’s continuing falling inflation outlook gives the RBI more room to tweak its policy. Now, inflation is expected to stay comfortably within its medium-term target of 4%, possibly even falling below that in months to come.

    This will enable RBI to concentrate on the next rounds of growth enablers, such as rate cuts and liquidity measures. The present scenario of low inflation makes it a point to reaffirm the view that the RBI enjoys ample policy flexibility to effectively respond to the changing macroeconomic dynamics.

    Strong External Sector and Reserves

    India’s foreign sector still enjoys good health, further enhancing the country’s general economic stability. Foreign exchange reserves rose to a robust USD 702.78 billion in the week to June 27, 2025, moving closer to their all-time high.

    This comfortable reserve support provides a strong line of defence against shocks and would cover more than 11 months of goods imports. The trade dynamics with the US and its impact on the trade balance are being watched, but the intrinsic export strength (total exports posted an all-time high of USD 824.9 billion in FY2024-25) and steady remittances are continuing to be the foundation for India’s external account.

    Cumulatively, these are factors which illustrate India’s sturdy economic standing in July 2025.