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PLACEMENT BOOSTER - MACRO ECONOMIC TRENDS 1st Aug 2025

  • Aug 1, 2025
  • MACRO ECONOMIC TRENDS

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Global Trends

GDP Growth

  • United States: Economic activity has picked up in Q2. The Atlanta Fed projects ~2.4% annualized growth for Q2 2025 (rebound from a Q1 contraction).
  • Business equipment spending in the U.S. slowed sharply in Q2 2025, a sign that nonresidential investment, once a key GDP driver, is weakening.
  • China’s growth is moderating. Official data show Q2 GDP up ~5.2% year-on-year, down from 5.4% in Q1. Industrial output is still rising (June up 6.8% YoY, fastest since March) but retail sales have slowed. Most analysts expect growth to slow further in H2 absent major stimulus .
  • Eurozone business activity accelerated in July, reaching an 11-month high. HCOB composite PMI (a proxy for GDP growth) rose to 51.0, up from 50.6 in June(above 50 indicates expansion).
  • For the first time in over a year, overall demand in the Eurozone stabilized (composite new business index at 50.0, highest since May 2024). The data suggests the Eurozone economy is gradually regaining momentum, with recessionary conditions in manufacturing easing.

Global Trends

Monetary Policy

  • Federal Reserve (US): Policy rates are on hold. The Fed’s policy rate stands at 4.25–4.50% after a pause since December 2024. A late-July meeting held rates steady as expected. Most forecasters see no cut until at least September, though some policymakers have flagged cuts if the labor market weakens. Trump administration tariffs are expected to keep inflation risks elevated.
  • European Central Bank (ECB) is expected to hold interest rates steady, as per economists. A small majority expects one more rate cut, likely in September.
  • Moderating inflation and stabilizing growth in EU offer room for cautious easing later in the year.
  • China’s key lending rates (LPR) have been steady (1-yr at 3.00%, 5-yr at 3.50%). Inflation is very low and deflationary pressures persist (PPI down steeply), so markets expect eventual easing. The central bank so far has held rates (latest policy action in May cut loan prime rate) but has injected liquidity.
  • The Bank of Japan is watching higher inflation (Tokyo CPI ~2.9%); most economists expect a further rate hike to 0.75% later in 2025.
  • The Bank of England is expected to cut rates by 25 bps to 4% on August 7, while simultaneously slowing its quantitative tightening, after gilt yields rose sharply and liquidity tightened. Analysts suggest active gilt sales may pause from October, possibly shifting focus to shorter-duration bonds or other tools

Inflation

  • United States: Inflation is slowing from last year but has ticked up in the past month. Overall CPI rose fastest in five months in June (driven by food, apparel and other imported goods). Core inflation (PCE excluding food/energy) is around 2.7% and not far from the Fed’s 2% target . Tariffs on imports are expected to push some prices higher in coming months.
  • Euro Area: Inflation is steady around 2.0%, right at the ECB’s target. Services-price inflation has eased, reflecting slower wage growth, and goods inflation is stable. Low energy costs and moderating demand suggest inflation should remain near 2%.
  • China’s inflation is very low (near zero) and producer prices are deeply negative (deflationary).

 

Global Trends

Fiscal Policy

  • United States: In June/July, Congress approved a large fiscal package (dubbed the “One Big Beautiful Bill”) including permanent tax cuts and reduced spending. This will add roughly $3.4 trillion to the budget deficit over 10 years. Supporters argue it will boost growth, but it will also raise debt and could add to inflationary pressures.
  • China: The government is preparing additional support measures as growth slows. Policymakers have ramped up infrastructure spending and subsidies, and a mid-year Politburo meeting is expected to discuss targeted fiscal stimulus (likely for property and infrastructure). Local governments may also front-load deficit spending to cushion the economy.
  • Eurozone: Most governments are running moderate deficits to support recovery. No major new euro-area-wide stimulus has been announced, but some countries (e.g. Italy, Spain) continue selective spending. The EU is also releasing recovery funds for member states.

Global Trends

Sectoral Developments

  • Tech: Mixed signals. Global tech companies are cutting jobs as demand slows. For example, Intel plans to cut its workforce by ~22% by year-end , and India’s TCS will trim ~2% of staff (~12,000 jobs) as it integrates AI and faces weak IT spending . However, investment in AI and cloud remains strong: US chipmaker Nvidia continues to grow rapidly (on AI boom), and tech capital spending (servers, cloud infrastructure) is a positive. Overall, big tech earnings are reasonable but cautious forecasts and cost-cutting are common in 2025.
  • Energy: Oil prices have eased. Brent crude is around $68–69/barrel and WTI ~$65 (as of late July), down from spring highs . This reflects weak demand outlook (US and China economic worries) and rising supply. OPEC+ is set to raise output (about +548,000 barrels/day in August and again in September), unwinding earlier cuts to recapture market share. Meanwhile, US sanctions on Venezuela are being relaxed (allowing Chevron to operate there), and Iran is continuing nuclear talks, which could further ease supply constraints supplied. These factors keep fuel markets relatively well. Oil prices have slipped toward three-week lows amid demand concerns, even as OPEC+ plans further output increases .
  • Manufacturing: Activity is subdued globally. The euro-area manufacturing sector saw modest growth (PMI ~49.8 in July, near neutral). German industrial sentiment has improved slightly (IFO index up) but new orders are weak. In the US, manufacturing orders (durable goods excluding aircraft) fell 0.9% in June, suggesting industrial investment slowed in Q2. China’s manufacturing output is stable (industrial output +6–7% year-on-year), but profits have fallen, indicating overcapacity and price pressures. Auto and machinery sectors remain under pressure from weaker global trade.
  • Banking/Financials: Banking systems are sound with low stress. Major banks in the US and Europe continue to report stable profits; lending growth is modest. Credit conditions have tightened somewhat (banks are cautious after a credit boom), but there are no systemic problems. Low-for long interest rates have weighed on net interest margins, but rising deposit costs (from high policy rates) and loan growth in emerging markets are helping.
  • Manufacturing: Activity is subdued globally. The euro-area manufacturing sector saw modest growth (PMI ~49.8 in July, near neutral). German industrial sentiment has improved slightly (IFO index up) but new orders are weak. In the US, manufacturing orders (durable goods excluding aircraft) fell 0.9% in June, suggesting industrial investment slowed in Q2. China’s manufacturing output is stable (industrial output +6–7% year-on-year), but profits have fallen, indicating overcapacity and price pressures. Auto and machinery sectors remain under pressure from weaker global trade.
  • Banking/Financials: Banking systems are sound with low stress. Major banks in the US and Europe continue to report stable profits; lending growth is modest. Credit conditions have tightened somewhat (banks are cautious after a credit boom), but there are no systemic problems. Low-for long interest rates have weighed on net interest margins, but rising deposit costs (from high policy rates) and loan growth in emerging markets are helping.

Global Trends

Geopolitics and Trade

  • U.S.–EU Trade: U.S. President Trump and EU leaders are negotiating a deal to avert a threatened tariff war. A framework agreement is expected soon: reportedly a 15% tariff rate on most EU exports to the U.S., in exchange for more U.S. market access. This would replace a proposed 30% tariff. The deal (meeting in late July 2025) would end uncertainty for exporters of cars, steel, and other goods.
  • U.S.–China Trade: The August tariff “truce” between Washington and Beijing is being extended. Negotiators met in Stockholm on July 27 to agree on postponing a deadline (initially Aug 12) for rolling back tariffs . The goal is to avoid re-imposing 100%-level duties and to work toward a broader trade deal. Outcome is still uncertain; failure could resume full trade-war tariffs.
  • Other Tariffs: Starting Aug 1, the U.S. imposed tariffs on many imports to press for reciprocal access (affecting Mexico, Canada, Japan, EU, etc.) . Affected countries are responding with demands and trade talks. For instance, Bangladesh ordered Boeing planes and increased U.S. imports to seek tariff relief . India is negotiating tariff rollback with the U.S. (a 26% U.S. tariff on Indian goods was implemented, with an Aug 1 deadline extended to late summer ).
  • The US also struck a “trade deal” with Japan (announced July 25) involving a 15% tariff on Japanese goods and $550B of U.S. investment .
  • Global Risks: The war in Ukraine continues to impact Europe (especially energy markets), but summer demand is absorbing much of the supply. Middle East tensions (e.g. Iran’s nuclear talks and any conflict spillovers) remain a wildcard for oil/gas prices. Overall, trade-war uncertainty remains high – but recent tentative agreements (tariff truces) have eased some worst-case scenarios. Geopolitical factors (climate events, pandemics) have so far had limited new impact in this period.

Indian Trends

GDP outlook

  • India’s growth momentum remains solid. GDP is estimated to have expanded ~7.4% year-on year in Q1 FY2025‑26 (Apr–Jun) , a rapid pace that allows some breathing room even as inflation cools.
  • Forecasters expect growth in the mid‑6% range for FY2026. For example, the Asian Development Bank cut its FY25/26 GDP forecast to 6.5% , and RBI officials also envisage 6.5% real GDP growth next year . (Rating agencies like India Ratings likewise see growth around 6–6.5%, and the government’s budget target is ~6.5–7%.) Growth is being underpinned by robust private demand and a pickup in public capital spending.
  • Overall the outlook is for continued expansion, albeit with some slowdown from last year’s near‑7% trend, as higher taxes and subsidy cuts trim demand and elevated base effects ease (consistent with RBI forecasts)

Inflation (CPI &WPI)

  • Inflation eased sharply in June 2025, with CPI falling to 2.1% YoY, the lowest since Jan 2019, mainly due to a drop in food prices (food inflation at –1.06%).
  • Urban and rural inflation also declined to 2.56% and 1.72%, while core inflation stayed steady around 4–4.6%, indicating underlying price pressures remain.
  • WPI inflation turned slightly negative (–0.13%), suggesting broader price softness; this may give the RBI room to consider rate cuts.

 

Indian Trends

Monetary policy

  • The RBI cut the repo rate by 50 bps to 5.50% in June 2025, marking a total of 100 bps of easing since February, and changed its stance from “accommodative” to “neutral”. The move was unexpected and signals a shift to a data-driven approach based on inflation and growth trends.
  • With inflation now at multi-year lows, most economists expect the RBI to hold rates steady in August and possibly deliver one more 25 bps cut by the end of 2025, depending on how inflation evolves.
  • The RBI has injected around ₹5.6 trillion into the banking system this year through bond purchases and cut the Cash Reserve Ratio by 100 bps, creating ample liquidity and easing deposit costs for banks.

Fiscal Policy

  • FY2025–26 Budget targets a fiscal deficit of 4.4% of GDP, down from 4.8% in the previous year. The government is continuing its path of modest fiscal consolidation, while maintaining high public investment.
  • Early fiscal data show a strong start: In April–May 2025, the deficit was just ₹0.13 lakh crore, only 0.8% of the full-year target—far below the 3.2% seen in the same period last year.
  • This was made possible by robust revenue inflows, including a record ₹2.69 lakh crore dividend from the RBI in May, along with restrained government spending in the opening months of the fiscal year.
  • Capital expenditure rose 54% YoY to ₹2.21 lakh crore (nearly 20% of the FY26 capex target), suggesting the government is frontloading infrastructure investment. Despite a slight rise in planned borrowing (₹14.82 lakh crore), debt-to-GDP is set to decline towards 50% from about 57%.

Indian Trends

Trade Performance

  • India’s trade deficit narrowed to $18.78 bn in June 2025, as exports dipped to $35.14 bn (–9% MoM) but imports fell more sharply to $53.92 bn, driven by lower oil and gold prices. Crude imports hit a 5-month low (20.32 mmt).
  • In Q1 FY26 (Apr–Jun), exports rose 1.0% YoY to $112.2 bn, while imports increased 4.2% to $179.4 bn, widening the trade gap slightly despite softening global commodity prices.
  • Services exports stayed strong, with a $15.6 bn surplus in June. Notably, U.S.-bound exports grew 23% YoY in June, reaching $25.5 bn in Q1 despite tariff uncertainty.
  • Lower import bills and robust services earnings are keeping the current account deficit low (~0.7% of GDP in Q1, per ICRA). The government aims to hit $1 trillion in exports by FY26, supported by PLI schemes and trade deals.

 Geopolitical/External Factors

  • India and the U.S. are advancing trade and investment negotiations, with U.S. officials scheduled to visit India in August.
  • India is proceeding cautiously, emphasizing national interest and has not received formal tariff warning letters, unlike some other countries.
  • A bilateral deal could resolve tariff issues, boost Indian exports, and open greater market access in sectors like pharma, textiles, and IT services.
  • Despite a slowdown in Western economies, India’s exports to the U.S. and EU have continued to grow, and foreign investment inflows remain resilient.
  • India and the UK have signed a major Free Trade Agreement, targeting a rise in bilateral trade from ~$20 billion to over $30 billion in five years.
  • The UK-India FTA includes tariff cuts on Scotch whisky, textiles, and automobiles, improved services access, and benefits for MSMEs and employment in pharma, IT, and apparel.

Indian Trends

 Sectoral Development

  • Agriculture: Monsoon rains were 9% above average in June, arriving early and aiding early kharif sowing, which is 11.3% higher YoY (26.2 mn hectares). Record rice acreage and strong rainfall forecasts for July suggest healthy rural incomes and food output, likely keeping food inflation in check.
  • Manufacturing: The HSBC Manufacturing PMI rose to 58.4 in June (14-month high), reflecting strong output and export orders. Easing input costs (e.g., steel) suggest robust factory activity, though official industrial growth (April–May) remained modest (~1–2%).
  • Services/IT: The sector remains resilient, with services PMI above 50. However, IT firms saw only single-digit revenue growth in Q1 FY26 (e.g., Wipro +0.8%, Infosys +7.5%), citing weak global demand. Yet, services exports and domestic finance, telecom, and retail show steady momentum.
  • Energy/Commodities: Oil imports dipped 4.7% MoM in June (~20.3 mt), reflecting monsoon-driven demand drop. Soft global oil/gold prices helped ease inflation. India is expanding renewables and gas infrastructure, and plans increased U.S. LNG imports from 2026.
  • Banking & Finance: Credit grew ~9% YoY in June, led by retail and corporate demand; deposit growth (~10%) outpaced loans amid strong equity markets and falling rates. RBI’s liquidity easing supported banks, though margins may compress due to lower interest rates.

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