Economy Spotlight the Most Important Events and What's Coming 14-21/04/2025

Introduction:

Following US President Donald Trump's 90-day suspension of his tariffs, this week's Economy Spotlight report covers critical issues across major economies. 

The report also highlights several key issues, including key central bank decisions and key economic indicators expected this week.

Main keywords:

• Analysts point to Trump's actions, which are pushing countries to quickly abandon the state and threatening the US dollar's standing.
• The Chinese president begins a very important Asian tour to strengthen cooperation between three important countries.
• Japan discusses very important issues related to the Japanese economy and its limited impact from tariffs and warns against abandoning US bonds.
• Major central banks hold meetings to decide on interest rates, most notably the European side.
• Europe prepares for inflation readings, and the US Federal Reserve Chairman will speak after Trump suspends his tariffs.
• China awaits the release of its first GDP reading. Will it do so and confirm its economic improvement?

Economy Spotlight: Trump Tariffs Impact. Major Economies:

First. The US Economy:

US President Donald Trump postponed the imposition of tariffs for 90 days, following pressure from both the markets and congressional Republicans, who were concerned about the risk of a recession and the impact it could have on the party's electoral prospects.

This surprising decision helped calm financial markets on the same day of the postponement, with the stock market recording its third-largest rally in post-World War II history.

The Trump administration concluded the surprise move on Friday evening by granting exemptions from the steep reciprocal tariffs on smartphones and a range of other electronic products, a welcome sign of hope.

However, statements by US Commerce Secretary Howard Lutnick earlier this week revived uncertainty when he said that smartphones, computers, and some other electronic devices would be temporarily exempt and would face separate trump tariffs, along with semiconductors, over the next two months.

With these surprising actions and subsequent decisions, there has been widespread talk about the risks to the dominance of the US dollar as the most sought-after currency for financing global trade. The British newspaper, The Guardian, reported that Trump's actions threaten the status of the US dollar, which has fallen by more than 8% since the beginning of the year. Deutsche Bank's head of foreign exchange research, however, believes that Trump risks reassessing the US dollar's structural attractiveness as a global reserve currency and accelerating the de dollarization process at a rapid pace. 

Raghuram Rajan, former governor of the Reserve Bank of India and former chief economist at the International Monetary Fund, stated that Trump's erratic policies are harming the global image of the US economy in the long term. 

All this US economic news last week coincided with optimistic economic data on inflation, including the Consumer Price Index (CPI), which fell to 2.4% for the first time since October 2024, and the Producer Price Index (PPI), which fell to 2.7%, the lowest reading since December 2024. This provided a positive boost to the Federal Reserve, which analysts had been predicting would cut interest rates at its next meeting on May 7. 

FedWatch forecasts indicate a 78.6% chance of a quarter-point rate cut, compared to a 21.4% chance of a half-point cut. Markets will be watching an important speech by US Federal Reserve Chairman Jerome Powell on April 16th, where he will update the markets on the latest developments following the tariff suspension measures on the one hand, and Trump's insistence on antagonizing China by raising comprehensive tariffs to very high levels.

Second. European Economy:

The European economy began last week with the Cleantech 2025 conference, which explored Europe's path to a competitive, resilient, and carbon-free future. European Commission President Ursula von der Leyen emphasized Europe's pivotal role in establishing its competitiveness as a global leader in clean technology, mobilizing more funding for innovation, and simplifying business rules. This was in light of ongoing work to examine the status of the European-American relationship and attempt to reach mutually satisfactory negotiations regarding tariffs impact, while expressing her full readiness to respond should negotiations fail.

The European Commission also responded to the US by announcing that the European Union would suspend its planned tariffs on the United States for 90 days, which were due to take effect on April 15. This came after Trump ordered the suspension of reciprocal tariffs on European imports above the 10% base rate.

Von der Leyen emphasized that the EU is currently intensifying its efforts to remove barriers within its single market, with the aim of providing stability and flexibility in times of uncertainty. On the German side, the new Friedrich Merz administration pledged tax cuts, energy price reductions, and a large-scale public-private investment campaign as a response to US threats if negotiations fail to succeed. For his part, the President of the French Central Bank, François Villeroy de Galhau, believed that the US tariff crisis could push Europe to regain control of its economic destiny.

Third. Japanese Economy:

Last week, Japan hosted the World Expo amidst difficult economic conditions. 160 countries and regions participated in a showcase their technologies, cultures, and other offerings. Japan hopes this global event will provide economic hope at a time when it is most needed, a point Japanese Prime Minister Shigeru Ishiba explicitly noted in his opening remarks.

Before the tariff suspension, Japan was the first country to announce negotiations with the US, which in turn stated that it would prioritize Japan over other countries that had been granted (according to the US) the opportunity to hold comprehensive negotiations satisfactory to all parties.

Despite the US suspension of its tariffs on Japan, Ivaylo Dikov of East Spring Investments said that the impact of the new US tariffs on the Japanese economy may be less significant compared to countries like China and Mexico, because Japanese companies may focus their activities on domestic activity, particularly small and medium-sized enterprises. 

The Japanese yen also strengthened against the dollar, a move the US president had called for when he criticized the weakness of some currencies against the dollar. 

The yen fell nearly 3%, reaching its highest level since October 2024. However, analysts said the Bank of Japan would need time to assess the possibility of raising interest rates, to ensure it does not negatively impact Japan's economic recovery or asset markets, as happened in July of last year. Regarding Japan's holdings of US debt (the world's largest), the chairman of the ruling party's policy committee said that Japan should not rush to deliberately sell its holdings of US Treasury bonds as a response to US tariffs, an explicit rejection of a previous proposal to use holdings as a negotiating tool in bilateral US-Japanese trade talks.

Fourth. Chinese Economy:

Chinese President Xi Jinping will begin his Asian tour on Monday, aiming to strengthen relations with neighboring countries amid the escalating trade war with the United States. He will visit Vietnam before heading to Malaysia and Cambodia, in a tour described by Chinese officials as highly significant.

Analysts indicate that these visits are intended to emphasize China's intention to present itself as a stable partner, in stark contrast to Trump's aggressive policies.

Expectations indicate that China may conclude dozens of deals with Vietnam, in various sectors, including infrastructure.

For its part, China has urged the United States to lift the 145% tariff on all Chinese imports into the US market. China's retaliatory tariffs of 125% took effect on Saturday of this week.

Some analysts have indicated that although the tariffs between China and the US may eventually be suspended, a disruption or cessation of trade between the two sides could harm both the US and Chinese economies, as well as many other countries. 

Manufacturing capacity will decline or be partially disrupted in Chinese and American factories, potentially leading to layoffs and increased unemployment (unemployment rates in both China and the US remain high), given that bilateral trade between the two countries is estimated at approximately $582 billion. 

These losses could also affect some countries whose economies rely on imports of American final products, which in one way or another rely on imports of some intermediate goods from China.

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

Global markets will be awaiting the following economic data: