Bearish Global Growth Outlook, Dutch Government Collapses, and In-Target Euroland Inflation – Currency Thoughts
Bearish Global Growth Outlook, Dutch Government Collapses, and In-Target Euroland Inflation
June 3, 2025
Citing tariff strains, the updated forecast of the Organization for Co-Operation and Economic Development (OECD) has revised projected global growth for this year and next lower to 2.9%. In the United States where deportations and federal job cuts will inject additional headwinds, real GDP is seen by the group expanding just 1.6% in 2025 and 1.5% in 2025. That’s still higher than the revised forecasts for Japan (0.7% followed by 0.4% next year), Germany (0.4% and 1.2%), Great Britain (0.6% and 0.9%), and Euroland (1.0% and 1.2%). In three particular objects of President Trump’s tariff war, real GDP growth is projected at 1.0% and then 1.1% in Canada, 4.7% and then 4.3% in China and 0.4% and 1.6% in Mexico. After growth last year of 4.3%, Russian GDP is projected at just 1.6^ this year and 1.7% in 2025, and Brazilian growth slows to 2.1% in 2024 and 1.6% in 2026. The one notably unscathed economy is India, where GDP is forecast to rise 6.3% and then 6.4%. Higher tariffs also will carry inflationary risks.
The Dutch government coalition headed by Prime Minister Schoof has collapsed after the far-right party pulled out over a dispute over immigration policy.
Consumer price inflation in Euroland slowed to an eight-month low and in-target 1.9% last month. Total and core consumer prices were unchanged compared to April’s level. The 12-month rate of rise in core prices (excluding food and energy) decelerated more than forecast to a 43-month low of 2.3% from 2.7% in the prior month. This included a huge 0.8 percentage point reduction in service sector prices to 3.2%. CPI inflation in the euro area had previously dropped from a high of 10.6% in October 2022 to last year’s low of 1.7% in September but then rebounded to 2.5% in January.
In financial markets around the world this Tuesday, the dollar strengthened 0.4% on a weighted basis and bilaterally against the Swiss franc and euro, 0.6% vis-a-vis the Australian and New Zealand currencies, and 0.3% versus the Japanese yen and sterling. Ten-year sovereign debt yields have declined six basis points in the U.K., 3 basis points in the U.S., Germany, France and Italy, and two basis points in Japan and Spain.
U.S. stock futures were trading mildly in the red prior to today’s release of U.S. factory orders and the JOLTS data on job quits and hirings. Earlier in the Pacific Rim, Hong Kong’s Hang Seng index jumped 1.5%, but India’s Sensex lost 0.8%. European stock markets are slightly under water. Prices of gold and Bitcoin have dropped 0.4% and 0.6%, but oil is 0.4% firmer.
Minutes from the last Reserve Bank of Australia policy review in May that resulted in a 25-basis point cut of the Official Cash rate show that officials also considered two other scenarios of cutting the rate by 50 basis points or not at all reveal a majority favoring caution rather than aggressive reaction to the unfolding tariff war whose ultimate outcome remains quite uncertain. So far, tariffs haven’t affected the economy discernibly.
Bank of Japan Governor Ueda again reiterated the warning that if inflation and economic activity evolve as bank officials expect, officials are prepared to lift interest rates gradually higher. The last rate hike to 0.50% was done in January.Co
The privately compiled Chinese manufacturing purchasing managers survey in May produced a much weaker-than-forecast reading of 48.3, which represents a 32-month low after scores of 50.4 in April and 51.2 in March.
Private non-oil purchasing manager surveys improved in May to a 3-month high but still sub-50 score of 49.5 in Egypt and a 2-month high of 55.8 versus April’s 8-month low of 55.6 in Saudi Arabia.
Ireland’s manufacturing PMI fell 0.4 points to a 2-month low of 52.6 last month, while Malaysia’s PMI stayed below the 50 level for a twelfth straight time at 48.8 in May.
Euroland unemployment as well as inflation was reported today. The jobless rate dipped back to a 4-month and record low of 6.2% in April. That’s down from a cyclical high of 8.6% in August-September of 2022 and an all-time peak of 12.3% in April 2013.
Following zero monthly movements in March and April, Swiss consumer prices ticked up just 0.1% in May, causing their 12-month rate of change to swing into negative territory for the first time in 50 months at -0.1%. Inflation had crested in August 2022 at 3.5%. Core inflation last month of 0.5% was its lowest in 44 months.
Turkish consumer price inflation has decelerated every month since cresting at 75.45% in May 2024, including by 1.7 percentage points last month to a 42-month low of 35.4%. The previous down-cycle from 85.5% in October 2022 to 38.2% in June 2023 was abruptly short-circuited by an ill-advised premature loosening of Turkish monetary policy the President Erdogen had ordered. Turkey’s example serves notice of the upside inflationary risks that can happen in the absence of strict monetary policymaking independence. Turkish producer prces, which peaked in 2022 at 157.7%, edged up last month to 23.1% from April’s 34-month low of 22.5%.
South African quarterly growth slowed from a five-quarter high of 0.4% in the final quarter of 2024 to 0.1% in the first quarter of this year. That left year-on-year inflation unchanged at 0.8%.
In autocratically-run Hungary, real GDP slid 0.2% last quarter and was unchanged from its year-earlier level.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Euroland CPI inflation and unemployment rate, OECD growth forecast, Swiss and Turkish CPI
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