Economy Spotlight: The Most Important Events and What's Coming 17-23/03/2025

Introduction:

Last week was no different from what financial markets have been accustomed to observing regarding the economic tensions resulting from Trump's aggressive fiscal policies. However, what was new was the massive disruption that occurred at the opening of the markets, which were dominated by red, due to rising expectations that the US economy was entering a recession. 

Concerns were similar in other major economies, most notably the Chinese economy, which is still struggling to revive itself. Canada also had a share of the economic scene last week due to a decision taken by a Canadian province regarding electricity supplies to some US states. This week's "Economy Spotlight" report will address various issues, which will be a busy and important week for the major central banks, five of which will meet to decide on interest rates, along with the People's Bank of China's decision on this matter.

Economy Spotlight. Major Economies:

First. The US Economy:

The US economy continues to suffer from the repercussions of tariffs, which intensified at the beginning of last week when Trump did not rule out any economic downturn, considering it a transitional phase for the US economy. Analysts considered this a potential sign of an impending economic recession.

The unrest intensified last week when the Premier of Ontario, Canada, announced that he would raise tariffs on electricity to some US states by about 25%. The next day, Trump doubled tariffs on Canadian steel and aluminum, before both sides backed down. This move was not enough to cancel the tariffs on some Canadian imports that took effect mid-last week.

Europe joined the tariff scene, with the European Union announcing that retaliatory tariffs amounting to approximately $28 billion on US goods would take effect on April 1. Trump responded by including some other European goods subject to tariffs.

With this unrest, fears have grown that Trump's policies will harm US economic growth this year. Goldman Sachs lowered its forecast for US economic growth from 2.4% to 1.7%. Meanwhile, a JPMorgan economist raised his forecast for a US recession from 30% to 40%.

In terms of economic indicators, inflation data was the most preoccupying global markets, with declines greater than expected, both in the Consumer Price Index (CPI), which fell from 3% to 2.8%, and the Producer Price Index (PPI), which fell to 3.2% from 3.5%.

With these indicators, the US economy will begin next week, monitoring the retail sales report before heading into the Federal Reserve meeting, where investors will be watching three things: the interest rate decision, interest rate expectations for the coming quarters, and Fed Chairman Jerome Powell's press conference.

Second. European Economy:

In a first, the European Union took the initiative to respond to the US tariffs that came into effect on European steel and aluminum, imposing similar tariffs on US goods worth $28.3 billion.

In turn, German Chancellor-in-waiting Friedrich Merz announced plans to amend the German constitution to ease financial restrictions, paving the way for a historic increase in government spending. This is a new German move that could stimulate the European economy and bring an end to the era of low interest rates, as Goldman Sachs recently noted in a commentary on the steps of the next potential German chancellor.

News from Germany and the massive European spending plans continue to have a positive impact on European investors, with consumer confidence falling to its lowest level since the middle of last year.

The Eurogroup meetings have begun, with participants promoting the idea of ​​an urgent need for a European Central Bank digital currency, or a "digital euro," given Donald Trump's desire to promote a stable dollar. Some European Union officials also confirmed during the Eurozone meeting that eurozone countries are committed to increasing defense investments, with the aim of stimulating the European economy.

The most important speech during the meeting was given by the President of the European Central Bank, who pointed to the uncertainty surrounding the central bank's ability to maintain inflation at 2%, due to current trade tensions.

As for the upcoming meetings, Europe will be marked by a series of meetings of major central banks (the Bank of England, the Bank of Sweden, and the Swiss National Bank).

Third. Japanese Economy:

The Bank of Japan opens its five-day meeting of major central banks next week, with expectations that the central bank will raise rates considering strong wage data.

This meeting comes after Japan lowered its fourth-quarter economic growth estimate from 2.8% to 2.2%, due to the impact of consumer spending on demand, which contracted by 0.3%. The GDP growth estimate also fell from 0.3% to 0.6%, which was lower than analysts' estimates.

Doubts remain over the future of the Japanese economy amid the threat of tariffs, especially since Japanese companies rely heavily on foreign trade. These concerns were reflected in statements by Japanese Finance Minister Shunichi Kato, who stated that Japan is still far from being in a position to declare a permanent end to deflation.

The Japanese economy is also awaiting the release of its inflation index (represented by the national core consumer price index) at the end of this week, which is expected to decline. This could be good initial news for the Bank of Japan in its upcoming meetings, which will begin in May.

Fourth. Chinese Economy:

Everyone is busy looking for any signs of a return to economic activity in China. This is especially true since the government confirmed in its most recent official meeting that it would target 5% growth this year, with inflation targeting 2%. This could face several challenges, most notably the continued weakness in domestic demand in China, which has led to inflation reaching negative levels for the first time in 13 months. However, the Chinese economy has received some positive news, particularly regarding expectations of improved consumption in 2025, which could contribute to an economic recovery, according to Ole Gerdau, Chief Operating Officer of Deutsche Bank China. He emphasized that this would play a significant role in stimulating the Chinese economy, especially since consumption contributes to two-thirds of China's growth this year.

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

Global markets will be awaiting the following economic data: