Manufacturing Weekly Economic Highlights | 27 January 2025

Welcome to our weekly manufacturing and economic newsletter, providing key insights and analysis on the latest developments in the global market. Stay updated and make informed decisions!

In this edition, we focus on the economic conditions in America, Europe, China, and Thailand, as well as updates on the commodity, energy, and logistics markets.

North America

“The DXY retreated significantly lower this week”

“Traders sell USD following signals that Trump will delay imposing tariffs”

“Trump pulls the US out of the OECD Global Minimum Tax framework”

“US to study compliance with US tax treaties and pursue measures to enforce compliance”

The USD Index (DXY) finished significantly lower this past week, from 109.41 on 17 January 2025 to close at 107.47 on 24 January 2025. The DXY is down 1.72% for the week, down 0.49% for the month, down 0.94% YTD, and up 3.90% over the past 12 months.

The USD saw its largest weekly devaluation since November 2023 when the US Fed ceased its monetary policy tightening cycle amid signals that Trump may soften his position on tariffs against China, as reported on 24 January by Bloomberg.

President Trump has not yet signed any executive orders concerning specific tariffs. He has, however, ordered the Treasury and Commerce departments to study current trade relations and report their findings by 1 April 2025.

Traders had been reluctant to sell USD prior to President Trump’s inauguration out of concern that he might immediately impose tariffs. Following signals of a delay in imposing tariffs, both the USD and US bond yields are both likely to pull back from recent highs.

Goldman Sachs currency strategists estimated that two-thirds of the tariff risk premium priced into the USD – EUR exchange rates have been unwound.

Meanwhile, President Trump issued a memorandum directing the Secretary of the Treasury, the US Trade Representative, and the Permanent Representative of the US to the Organization for Economic Co-operation and Development (OECD) to notify the OECD that any commitments made by the prior US administration “with respect to the Global Tax Deal have no force or effect within the United States absent an act by the Congress adopting the relevant provisions of the Global Tax Deal,” as reported on 23 January by Forbes.

The OECD has 38 member countries including the US, has established proposals to manage where multinational companies pay tax and to establish minimum tax rates.

Pillar One addresses “who has the right to tax income even if there’s no physical presence?”

Pillar Two addresses tax rates and seeks to manage unequal tax rates from country to country, including a global minimum corporate tax rate of 15%.

The President’s memorandum also directed the US Trade Representative to investigate “whether any foreign countries are out of compliance with U.S. tax treaties or have any tax rules that ‘disproportionately affect American companies.’ If so, the U.S. Trade Representative is tasked with creating a list of protective measures or actions the U.S. should take in response.”

The US Senate Finance Committee praised the President’s order to end the OECD’s “global tax overreach.” The House Ways and Means Committee introduced a bill to officially reject the OECD global tax framework.

Business Insider reported on 23 January that the proposed tariff policies of the Trump administration could cause the EUR to weaken to near parity with the USD, with the CAD and MXN (Mexican Peso) to devalue significantly. Expected policy rate cuts by the Bank of Canada are also expected to increase devaluation pressure.

Europe

“The EUR surged significantly higher this week relative to the USD”

“Eurozone PMI increases slightly to 50.2 from 49.6 driven by a modest manufacturing sector recovery”

“ECB expected to cut its policy rate by 25 bp next week and again in February”

“France calls for a massive regulatory pause to improve EU competitiveness”

“Are regulations the EU’s greatest export product?”

The EUR finished significantly higher this week, from $1.031 per EUR on 17 January 2025 to close at $1.051 per EUR on 24 January 2025. The EUR is up 2.24% for the week, up 0.75% for the month, up 1.45% YTD, and down 3.22% over the past 12 months.

The Eurozone Composite Purchasing Managers’ Index, release by Hamburg Commercial Bank and S&P Global, increased in January to 50.2 from 49.6 in December, indicating a modest expansion in private-sector activity for the first time since August, as reported on 24 January by The Wall Street Journal.

The small increase was driven primarily by a small recovery in the manufacturing sector, offset by slowing expansion in the services sector.

Capital Economics noted that the PMI surveys are “consistent with the economy stagnating.”

However, the weak expansion supports market expectations that the European Central Bank (ECB) will cut its policy rates by 25 bp at both next week’s meeting and the subsequent meeting in February.

ECB President Christine Lagarde last week discussed the growing disparity in US and EU policy rates, noting that “we do have that divergence [in monetary policy] that has to do with a different economic setting at the moment, between the U.S. and Europe.”

Meanwhile, France has called for a major revamp of European regulations, starting with ESG rules, to revive its competitiveness amid President Trump’s broad and rapid pursuit of deregulation, as reported on 24 January by Bloomberg.

The French government’s 22-page document called for “a massive regulatory pause.” It also called for examination and revision of recent legislation as existing laws are “ill adapted to the new context of exacerbated international competition and to the uncooperative policies of our main international competitors.”

Trump made a virtual appearance at Davos on 23 January and said, “a lot of the European businesspeople have expressed enormous frustration with the regulatory regime in the EU, and they attribute slower growth rates here because of the numerous factors, but especially because of regulations.”

The EU has prepared a draft report due to be published this week concerning its competitiveness strategy, promising to deliver “an unprecedented simplification effort to help deliver on a goal of cutting reporting obligations by at least 25%.”

China

“The CNY closed significantly higher this week”

“China is not seeking a trade surplus . . .”

“ . . . protectionism leads to nowhere, and there are no winners in a trade war.”

“China FDI in 2024 down 27.1%”

The CNY ended significantly higher this week, from 7.325 per USD on 17 January 2025 to close at 7.244 per USD on 24 January 2025. The CNY is up 1.11% for the week, up 0.75% for the month, up 0.74% YTD, and down 1.23% over the past 12 months.

China’s Vice Premier Ding Xuexiang addressed the 55th World Economic Forum (WEF) meeting in Davos, Switzerland on 21 January and said that China is not seeking a trade surplus and is willing to import more competitive and high-quality products and services to achieve balanced trade, as reported on 21 January by Reuters.

Ding said, "protectionism leads to nowhere, and there are no winners in a trade war. He further characterized multilateralism as being "the right path for maintaining world peace and promoting human development.”

He said that China welcomes more foreign investment, and it was willing to “solve problems encountered by domestic and foreign firms.”

FDI into China fell 27.1% in 2024 as businesses and investors worry about geopolitical and regulatory uncertainties.

In related news, Bloomberg reported on 21 January that Chinese trade surplus surged to a record $992 billion USD in 2024 driven by strong exports.

China signed an agreement with the US in January 2020 committing to purchase $200 billion USD worth of US goods to reduce its trade imbalance with the US. However, China failed to comply with this agreement, with the Covid pandemic blamed for contribution to its failure to fulfill its commitment.

Newsweek published an article on 22 January outlining the challenges preventing the Chinese economy from surpassing the US economy.

China has four times the population of the US. However, its population is forecast to decline by 55% by 2100, whereas the US population is forecast to grow by 18%.

“No other society has ever faced a steeper population decline absent war, disease or famine.”

China’s “one-child policy” was implemented in 1980 and was in force for 35 years until 2015. China’s fertility rate declined from 6 children per woman in 1970 to around 1 in 2024, with top-tier cities such as Shanghai having fertility rates of only 0.6, compared with 2.1 which is required to sustain a population.

The US fertility rate in 2024 is 1.6, which is also below replacement rate. However, the US also attracts significant immigration. Foreign born US residents represented 14.3% of the population in 2023.

The article notes that IMF data suggests that when adjusted based on “Purchasing Power Parity” (PPP) China’s GDP has exceeded US GDP since 2017. The IMF believes that this also explains how China has been able to rapidly expand its military strength. China currently spends approximately 25% of the US on its military, roughly $200 billion USD vs $800 billion USD. However, on a PPP basis, China’s military spending is nearly two-thirds that of the USA.

Asia Society Policy Institute’s Center for China Analysis researcher Lizzi C Lee said, “China has already achieved parity—or surpassed global leaders—in next-gen fields such as commercial nuclear power, quantum communications and some industrial AI applications. It especially excels in scaling up strategic technologies, from initial breakthroughs to mass-market deployment, as evident in green energy and critical minerals.

“However, technological leadership extends beyond isolated achievements; it depends on the overall health of an innovation ecosystem. The U.S. retains significant advantages in this regard thanks to its decentralized innovation model. While China's approach excels in achieving rapid results in strategic sectors, the flexibility and adaptability of the U.S. system provide a broader foundation for sustained innovation."

Around Asia: Thailand

“The THB rebounded significantly higher this week”

“Thailand inflation rises to 1.23% YoY in December . . .”

“ . . . but government calls to boost inflation to 2%”

“Thai minimum wages increased 2.9% effective 1 January”

“Bangkok chokes on smoke and smog, announces free public transport and WFH to reduce smog”

The THB ended significantly higher this week, from 34.43 per USD on 17 January 2025 to close at 33.57 per USD on 24 January 2025. The THB is up 2.50% for the week, up 1.44% over the past month, up 2.21% YTD, and up 5.83% over the past 12 months.

Thailand’s inflation increased to 1.23% YoY in December, rising above 1% for the first time in since May to meet the Bank of Thailand’s (BoT) target range of 1% to 3%, as reported on 5 January by Bloomberg.

Core inflation was 0.79% YoY, barely changed from 0.8% YoY in November, with consumer prices falling 0.18% MoM.

Inflation is expected to remain above 1% YoY during 1Q25 amid higher prices for diesel and food.

The Thai government is pushing the BoT to accelerate inflation to 2% YoY and is calling for further policy rate cuts. However, the BoT has held its policy rate at 2.25% following a 25 bp rate cut in October 2024.

The BoT “will stick with its robust monetary policy stance to deal with rising uncertainties. The focus on preserving policy buffer, by holding rates last month, will help combat challenges ahead.”

The BoT is forecasting average inflation in 2025 at 1.1% with GDP growth rising to 2.9% from 2.7% in 2024.

On 24 December Thailand’s cabinet approved new daily minimum wages, increasing rates by 2.9% to be between THB 337 and THB 400 per day depending on region, effective 1 January 2025, as reported on 24 December by Reuters.

The top minimum wage rate will apply only to the provinces of Chachoengsao, Chonburi, Phuket, Samui Island, and Rayong.

The cabinet also approved the second phase of the “Digital Wallet” stimulus program to pay THB 10,000 per person to four million elderly people in January.

Phase 1 of the program was launched in September, paying THB 10,000 each to 14.5 million low-income citizens.

The Digital Wallet program is intended to eventually distribute THB 10,000 cash payments to 45 million citizens.

Meanwhile, on 25 January PM Paetongtarn Shinawatra ordered Bangkok public transportation to be free for one week to reduce traffic and smog that has been choking the city. The government has pledged to compensate companies operating the affected transportation systems.

The government has also called for people to work from home, has closed 81% of schools around Bangkok, and will be inducing artificial rain and increasing surveillance to reduce smoke from cars and dust from construction sites.

Thailand is affected seasonally by smoke from farmers burning fields across Southeast Asia including Cambodia and Laos.

Commodities

“GSCI Commodity Index retreated modestly lower this week”

“The GSCI Industrial Metals retreated modestly lower this week”

“Industrial metal prices fall amid expectations of tariffs against Mexico and Canada”

“Indonesia to require exporters to keep 100% of export earnings onshore for one year, up from 30% for three months, effective 1 March”

The GSCI Commodity Index finished modestly lower this week, from 577.96 on 17 January 2025 to close at 571.14 on 24 January 2025. This index is a weighted index based on world-production of each commodity in the index, with energy and industrial metals comprising the bulk of the index weighting. The GSCI is up 3.91% YTD. Trading Economics has maintained its GSCI forecast this week at 556 by the end of 1Q25 and 577in 12 months.

The GSCI Industrial Metals index finished modestly lower this week, from 458.50 on 17 January 2025 to close at 454.43 on 24 January 2025. The Industrial Metals Index is up 9.14% over the past 12 months.

Industrial metals declined this week as markets anticipate new Trump administration tariffs against Mexico and Canada, as reported on 21 January by Bloomberg.

Saxo Bank A/S Head of Commodities Strategy Ole Hanson said, “the tariff threat is real, and it carries the risk of lower economic growth.”

On 20 January Trump said that he may impose import tariffs up to 25% on goods from Canada and Mexico.

Copper briefly fell below $9,200 per ton, aluminum and lead fell more than 2%, and zinc fell more than 1%.

Bloomberg reported on 21 January that Indonesia has announced a policy to force commodity firms to keep their export earnings onshore for at least one year effective from 1 March 2025 to boost its foreign exchange reserves and support the IDR.

Currently, exporters are required to keep 30% of export proceeds in Indonesia for at least three months.

Exporters have complained that the new regulation will impact their ability to manage cash flow and force them to take larger loans to finance ongoing expenses.

The IDR has weakened by more than 7% relative to the USD since late September despite multiple interventions by the Indonesian Central Bank.

The Bank Indonesia’s unexpected policy rate cut on 16 January add devaluation pressure on the IDR.

Indonesia is also considering cutting nickel mining quotas to boost prices, potentially worsening global shortages.

Indonesia’s biggest copper mine, owned by Freeport McMoran Inc. and a state-owned partner, has been forced to suspend exports pending a government decision over whether to temporarily relax a ban on exports.

Energy

“Crude slipped moderately lower this week”

“Henry Hub climbed moderately higher again this week”

“EU Natural Gas flowed moderately higher this week”

“Crude expected to continue downward trend in 2025 amid growing supply”

“EU gas inventories down on cold weather, but supplies adequate to cover 2025 demand”

“EU replenishment of gas inventories could cause supply shortages in Asia”

Brent Crude finished moderately lower this week, from $80.73 USD per barrel on 17 January 2025 to close at $78.43 USD per barrel on 24 January 2025.

Henry Hub finished moderately higher again this week, from $3.92 USD per MMBTU on 17 January 2025 to close at $4.01 USD per MMBTU on 24 January 2025.

EU Natural Gas finished moderately higher this week, from €47.42 per MWh on 17 January 2025 to close at €49.773 per MWh on 24 January 2025, equivalent to $13.89 USD per MMBTU. EU Natural Gas is down 1.35% YTD. Trading Economics maintained its EU Natural Gas TTF forecast this week at €52.46 per MWH by the end of 1Q25 and €58.72 per MWh in 12 months.

Global oil prices are expected to trend downwards in 2025 as markets adapt to the reduced supplies from Russia including the closing of oil pipelines from Russia to Europe, with Russian oil replaced by imports from the US and Middle East. Prices are expected to continue to slump amid Trump’s call for more crude production from Saudi Arabia, and his policy of “drill baby drill” to promote US energy production.

Brent Crude averaged more than $100 per barrel in 2022 amid the beginning of the Russian war in Ukraine. Brent dropped to an average of $82.60 in 2023 and fell to an average of $80.20 per barrel in 2024 despite the escalating conflict in Gaza, with 4Q24 Brent prices averaging $74.40.

Meanwhile, Reuters reported on 22 January that Europe may need more than 100 extra LNG cargoes equivalent to 12 billion cubic meters of gas to replenish shrinking inventories.

The value of the additional gas is around $6 billion USD at current prices.

EU gas storage sites are currently 59% full compared with 75% full at this same time in 2024 and 79% in 2023.

By the end of March gas inventories are project to drop to 30% to 35% of capacity, compared with 58% full in 2024.

Energy Aspects Analyst Erisa Pasko said, “Europe will need to maintain high prices to continue attracting spot and divertible LNG supply away from Asia.”

EU gas prices are trading at 14-month highs and are also being supported by cold weather and the termination of Russian gas transiting Ukraine.

Despite the lower inventory levels, Europe is expected to have enough gas supply and storage to cover 2025. Slovakia, the country hardest hit by the termination of the Russian gas transit agreement, also says it has enough supply and storage to cover 2025 demand.

The gas market is expected to remain tight until 2027 despite two new US LNG export terminals coming online this year. There is a possibility of gas supply shortages as EU gas demand pulls LNG cargoes away from Asian markets.

Logistics

“The BDI sank significantly lower this week”

“The CFI sank moderately lower again this week”

“Crude tank rates from the ME to China fall on weak demand”

“US lawmakers call on the Coast Guard to defend against potential threats posed by COSCO ships operating at US ports”

Baltic Dry?Index finished significantly lower this week, from 987 on 17 January 2025 to close at 778 on 24 January 2025. The BDI is down 21.97% YTD. Trading Economics has maintained its BDI forecast this week at 957 by the end of 1Q25 and 846 in 12 months.

The Containerized Freight?Index finished moderately lower again this week, from 2,130.8 on 17 January 2025 to close at 2,045.5 on 24 January 2025. This index tracks the current freight prices for containerized transport from the most important Chinese ports. The CFI is down 16.86% YTD. Trading Economics has maintained its CFI forecast this week at 2,551 by the end of 1Q25 and 2,845 in 12 months.

The rate for tankers transporting crude from the Middle East to China have fallen by nearly one third from their recent peak amid weakening demand, as reported on 24 January by Bloomberg.

Customers including Chinese refineries who previously imported oil from Russia were forced to seek replacement vessels or purchase oil from other sources such as the Middle East when the Biden administration sanctioned tankers carrying Russian oil. However, weak Chinese demand including the Chinese Lunar New Year has eased the demand for crude tankers.

Meanwhile, the Daily Caller News Foundation reported on 23 January that US Republican lawmakers have urged the US Coast Guard to take “decisive action” against Chinese military company COSCO Shipping that has “expansive operations at major US ports.”

COSCO is a Chinese state-owned enterprise that the US Department of Defense (DOD) recently added to its list of “Chinese Military Companies.”

The US House Committee on Homeland Security and the House Select Committee on the Chinese Communist party sent a letter to US Coast Guard Acting Commandant Admiral Kevin Lunday, saying, “permitting vessels and personnel affiliated with COSCO SHIPPING to operate within U.S. ports without adequate safeguards exposes the nation to unacceptable risks, particularly during times of increased geopolitical tension. As the lead federal agency for maritime security, the U.S. Coast Guard (USCG) must take decisive action to mitigate these risks.”

“It is essential that biographical information for all foreign mariners, particularly those from the PRC and other high-risk countries, undergo comprehensive scrutiny utilizing the complete range of classified and unclassified data resources accessible to the U.S. government.”

“The USCG must prioritize the integration of both classified and unclassified intelligence, strengthen interagency coordination and collaboration, and leverage advanced technological solutions to enhance its ability to detect and deter emerging threats.”

For more information on any of the topics and data discussed in this newsletter, including details of the source articles cited in this newsletter, contact Tractus via its LinkedIn page or visit the Tractus website at www.tractus-asia.com.

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