PLACEMENT BOOSTER - MACRO ECONOMIC TRENDS
- July 17, 2025
- MACRO ECONOMIC TRENDS
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Global Trends
Global Economic Growth and Activity
- The US economy shows resilience despite uneven hiring: Employers added 147,000 jobs in June, surpassing expectations, though private payrolls grew cautiously
- The US labour market remains tight: Unemployment dropped to 4.1% in June, and job openings hit 7.8 million in May, signalling robust demand
- Global manufacturing faces slowdown: Manufacturing activity contracted in key regions, with Asia’s export-reliant economies like Taiwan and Vietnam reporting weak demand, impacting global supply chains.
- Mixed signals in US services and consumer spending: While services PMI rose to 50.8 in June, indicating expansion, consumer spending fell 0.5% in May, reflecting caution amid policy uncertainty.
- Euro-area growth stagnates: Business activity PMI fell to 50.1 in June, showing near-stagnation due to manufacturing weakness and trade uncertainties.
- UK economy sees temporary boost: GDP grew 0.7% in Q1, the strongest in a year, but recent data, like weak retail sales, suggest a gloomier outlook.
- China’s economy shows weakness: Industrial profits fell 9.1% year-over-year in May, and the manufacturing PMI at 49.7 in June indicates ongoing contraction.
- Japan’s business sentiment improves slightly: The Tankan survey reported cautious optimism among large manufacturers.
Global Trends
Inflation and Monetary Policy
- Euro-area inflation stabilizes at target: Inflation hit 2% in June, but ECB remains cautious about rate cuts, requiring more time to confirm a sustainable decline.
- Rising inflationary pressures in key economies: UK grocery prices surged, potentially delaying BoE rate cuts.
- US Fed adopts wait-and-see approach: No immediate rate cuts planned, awaiting data on tariff-driven inflation.
- Japan’s annual wage negotiations led to a 5.25% pay increase, the highest in 34 years, boosting household income and supporting the BoJ’s view of a sustained wages-prices cycle..
- US wage growth steady: Hourly earnings rose 0.2% in June, with annual growth at 3.9%, adding to inflation pressures.
- Emerging markets ease cautiously: Countries like Mexico, Poland are cutting rates to support growth amid trade and inflation pressures.
Inflation and Monetary Policy
Fiscal Policy and Debt
- Trump’s One Big Beautiful Bill Act (OBBBA) was signed into law, projected to add $2 trillion to US debt over 10 years
- NATO members committed to a 5% GDP defence spending goal by 2035, potentially increasing spending by $371 billion.
- Global public debt has risen sharply, with servicing costs in some nations exceeding spending on education and defence.
- US fiscal expansion via OBBBA could limit emerging markets’ access to credit and complicate inflation control.
Fiscal Policy and Debt
Global Trends
Trade and Geopolitics
- The US and China finalised a trade deal, maintaining tariffs at an average of 40% on Chinese goods.
- Rising protectionism threatens global trade: Trump’s proposed tariffs on BRICS (an additional 10% ) and EU goods signal increasing barriers.
- BRICS pushes back on protectionism: Leaders warned of trade disruptions and economic disparities.
- US-EU trade talks falter: No deal by July 9 risks 50% tariffs on $1.98 trillion in annual trade.
- China expands trade with the Middle East. Optimism persists for the regions despite geopolitical risks like rising tensions between Iran and Israel threatening trade routes through the Strait of Hormuz, a key oil chokepoint.
- Trump proposed 25% tariffs on Japanese autos if trade negotiations fail by year-end
- Global trade faces historic challenges: Tariffs at decades-high levels increase costs and inflation risks.
- US effective tariff rates may settle at 10% broadly, with higher rates for China (40%), Canada (15%), and Mexico (20%).
Global Trends
Financial Markets
- US markets show optimism: S&P 500 gained 1.8% and Nasdaq rose 2.1% in the week ending June 28, both hitting all-time highs. Dow Jones Industrial Average climbed 2.30% in a holiday-shortened week, buoyed by strong earnings
- US high-yield bond prices rose 0.7% in June, supported by equity market gains.
- Japan’s Nikkei 225 dropped 0.91% over the week, reflecting yen strength and export concerns.
- China’s CSI 300 index advanced 1.18% in the week, driven by policy support expectations.
- Eurozone’s STOXX Europe 600 Index remained nearly unchanged, up just 0.1% for the week
Sectoral Developments
Housing
- Global housing markets face challenges: the US and the UK markets see declining sales and prices due to affordability and rate pressures.
- AI advancements in personalised medicine focus on biomarker-based treatments, potentially cutting diagnosis times.
- AI infrastructure investments are forecast to reach $1 trillion by 2030, led by data center expansions.
Indian Trends
Fiscal and Tax Trends
- Gross GST collections hit a record ₹22.08 lakh crore in FY25, registering a YoY growth of 9.4%. This is nearly double the FY21 figure of ₹11.37 lakh crore, reflecting strong tax buoyancy and formalisation efforts.
- The average monthly GST collection rose to ₹1.84 lakh crore in FY25, up from ₹1.68 lakh crore in FY24. The number of registered taxpayers under GST has surged from 65 lakh in 2017 to over 1.51 crore in 2025.
Inflation Outlook
- CPI inflation eased to 2.82% in May, its lowest since February 2019, largely due to a sharp drop in food prices. Forecasts for June 2025 indicate further moderation to ~2.5–2.6%.
- RBI’s FY26 forecast sees CPI at 3.7% overall, with Q1 at 2.9%, Q2 at 3.4%, Q3 at 3.9%, and Q4 at 4.4%.
Indian Trends
Trade and External Sector
- The U.S. has extended the suspension of reciprocal tariffs on Indian goods to August 1, giving exporters temporary relief and allowing more time to finalise a trade deal. India has a trade surplus of $41.18 billion with the U.S.
- Talks are progressing on a goods-focused trade pact, with the first tranche likely by Sep-Oct 2025. The extension also gives India a potential competitive edge as tariffs hit other nations.
Infrastructure and Investment Climate
- The PLI Scheme, covering 14 sectors, has attracted ₹1.76 lakh crore in investment, generated ₹16.5 lakh crore in output, and created 12 lakh jobs (direct + indirect).
- Sector-wise: Pharmaceuticals: ₹2.66 lakh crore sales, 83.7% domestic value addition. Bulk drugs: India moved from a net importer to a net exporter. Food Processing: ₹3.8 lakh crore in sales; major rural & MSME impact. Textiles: Technical textiles exports rose to $3.35 billion in FY25.
- RBI’s revised infrastructure lending norms cut provisioning for under-construction projects from 5% to 1%, effective Oct 1, 2025 — expected to revive credit flow to infra.
Indian Trends
Banking & Financial Stability
- Gross NPAs hit a multi-decade low of 2.3% in March 2025, down from 2.6% in Sep 2024. The highest GNPA contribution came from agriculture (6.1%).
- Despite risks, RBI’s stress tests show all banks remain solvent, even under severe adverse scenarios. No bank is projected to breach Tier 1 capital thresholds.
- Contagion simulations show manageable risks from NBFC or HFC failures, with solvency losses capped under 4% of Tier 1 capital in worst-case scenarios.
External Debt Snapshot
- India’s external debt rose 10% YoY to $736.3 billion as of March 2025, now 19.1% of GDP (vs 18.5% in FY24).
- Long-term debt (>1 year) dominates at $601.9 billion. USD-denominated debt leads at 54.2%, followed by INR at 31.1%.
Employment and Labour Market
- The government has launched the Employment-Linked Incentive (ELI) Scheme, with a budget of ₹99,446 crore, targeting 3.5 crore formal jobs by July 2027, of which 1.9 crore would be first-time formal workers.
- The scheme offers: ₹15,000 to employees (in two tranches) and ₹3,000/month subsidy to employers for new hires over 2–4 years (EPFO-linked).
- While the scheme aims to formalise India’s 90% informal workforce, challenges remain in execution, fraud monitoring, and incentivising sustained hiring.
Indian Trends
Consumption and Demand Trends
- Urban consumption showed a mild rebound in Q1FY26, particularly in packaged goods, fashion, jewellery, and personal care, helped by easing inflation and improved sentiment.
- Rural demand remained relatively soft, and unseasonal weather affected beverage and agri-input-linked categories.
- Sectoral commentary points to: FMCG and retail recovery, though still below pre-pandemic momentum. Discretionary consumption is gradually picking up as input costs ease (palm oil, crude derivatives).
- Axis Securities notes that a full demand recovery may take 1–2 more quarters, with key risks from geopolitical tensions, supply chains, and oil prices.
Consumption and Demand Trends
Sources
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