The same once again.

January 12-18, 2025

Big news. The proximity of Trump’s inauguration, which some are waiting with hidden hatred, and others – with colossal impatience, has had its impact, there is practically no interesting news in the economy. It can only be noted that against the background of no data on inflation in the US (nothing has changed compared to the previous month, year-on-year in December 2.9%, month-on-month – 0.4%), inflation for the full volume of industrial goods unexpectedly increased, by as much as 1.5% in December:

As we know, the US is experiencing both a general economic and industrial downturn. Against this backdrop, rising prices could mean one of two things. Or a general rise in inflation, and then the official figures cited above do not correspond to reality. That is, the Fed, based on some political reasons clearly related to Trump’s arrival, understated the figures..

Or the problem is that the real sector of the American economy has been completely exhausted and it is no longer possible to reduce prices to increase sales. Since it is difficult to compete with imports in such a situation, it is safe to say that this will lead to another round of industrial decline in the very near future.

It seems to us that the second option is the case, but this needs to be verified.

Macroeconomics. Chinese data finally cheers.

GDP accelerated to +1.6% per quarter (peak in almost 2 years):

And +5.4% per year (noticeably better than expected and a one-and-a-half-year maximum):

Industrial production accelerated to +0.6% m/m and +6.2% y/y:

Capacity utilization at peak over 4 years (76.2%):

New building prices have finally begun to show signs of stabilization:

However, investment in fixed assets continues to slow down (+3.2% per year):

Foreign direct investment slowed its decline slightly, but by the end of the year it was a record (-27.1%):

China’s yuan loans +7.6% per year, a record low in 27 years of data collection:

Here again there are options that we will consider in the final section of the Review.

According to the results of 2024, Germany’s GDP is -0.2% after -0.3% in 2023:

 

Eurozone industrial production -1.9% y/y, 19th consecutive monthly decline:

UK industrial output -0.4% m/m, 3rd negative in a row:

And -1.8% per year, the 14th negative month in a row (and in 2021/23 there was a series of 24 consecutive months of decline):

The New York Fed’s regional industrial activity index in the US is the worst in 8 months (-12.6):

Nigeria CPI (Consumer Inflation Index) +34.8% p/p, 29-year high:

US mortgage rates hit 8-month high (7.09%):

UK house price balance +28%, 27 month high, 9 year high if you ignore Covid:

US Federal Reserve balance sheet at its lowest in nearly 4 years:

Indonesia’s central bank unexpectedly cut the rate by 0.25% to 5.75%. The surprise was the preservation of the previous policy of the central bank of South Korea (easing was expected).

Main conclusions. There are several possible explanations for China’s results. The first is falsification of statistics (some Chinese experts are also talking about this). This is theoretically possible, but the reason is most likely different. The Chinese government has openly stated that they are going to soften the monetary policy, and if they started this work at the end of last year, the result should have been evident.

Main conclusions. There are several possible explanations for China’s results. The first is falsification of statistics (some Chinese experts are also talking about this). This is theoretically possible, but the reason is most likely different. The Chinese government has openly stated that they are going to soften the monetary policy, and if they started this work at the end of last year, the result should have been evident.

In the US, it is worth noting that the volume of mortgage applications has not increased even after Trump’s election and continues to systematically fall, reaching -63% from the peak of the pandemic and rolling back to the level of 1995. At the same time, in 1995, 80 million fewer people lived in the US. In proportion to the population, this is the lowest figure since statistics began to be collected.

In fact, we can say that the “credit ceiling” of how much a person can afford to spend on an apartment or other real estate at current income levels has been reached. Which, if we evaluate them not in absolute figures, but in relative ones, have significantly decreased relative to the cost of housing.

The data on the US budget deficit are also interesting, since it is through this that aggregate demand is currently supported. Here is an analysis by Pavel Ryabov.

“The US budget deficit is growing at an incredible rate.

Since the beginning of the 2025 fiscal year (October-December 2024), the budget deficit was a record 711 billion vs. 510 billion a year earlier (almost +40% y/y), and the previous maximum was in the COVID 4Q20 (573 billion).

On average, for the fourth quarter, the budget deficit in 2020-2023 was at the level of 471 billion and only 300 billion in 2017-2019.

Such weak results are due to a decrease in revenues by 2.2% y/y at par (1.08 trillion in 4Q24), while expenses increased by 10.9% y/y to 1.79 trillion.

Revenues have remained virtually flat in Q4 for the past 4 years (range 1.02-1.1 trillion), while expenses have grown 29% year-over-year.

In December, the deficit was not the largest – 86.7 billion vs. 129.4 billion in Dec. 23, but firstly, historically December was moderate in terms of deficit formation (in 2010-2010, on average, there was only 1.2% of the annual deficit, i.e. conditions close to normalization of the balance or a small surplus), and secondly, in recent years, the Ministry of Finance has been distributing a significant part of expenses at the end and beginning of the month, and if there is a day off, expenses for the beginning of the current month can be distributed at the end of the previous month).

Part of the expenses (approximately 40-50 billion) for December were transferred to November, so the November deficit turned out to be much higher than planned, and the December deficit was lower, so it is better to look at the smoothed deficit for three months.

Income in December increased by 5.8% y/y, and expenses decreased by 3.1% y/y.

The annual deficit was formed at the level of 2.03 trillion and has remained at this level for almost two years, if we exclude advance accruals and write-offs of student loans of more than 300 billion.

The budget deficit, taking into account inflation, is at the level of the 2009-2011 crisis.

Expenses in the 2025 financial year increased by 10.9% y/y or 176.3 billion, but due to what?

•  Medicine in total +85.6 billion;

•  Pensions and support for veterans +48 billion (indexation of pensions + demographics);

•  Net interest expenses +26 billion (interest expenses are currently decreasing, but in the spring they will begin to grow again due to the refinancing of medium-term and long-term debts against the background of stabilization of bills);

•  Environmental protection, climate agenda +23.9 billion (Temporary increase in funding for programs to combat climate change and protect the environment before Trump, who plans to cancel all of these programs);

•  Defense +23.8 billion;

•  Social security +19.4 billion (now spending in this area will only grow, since the potential for reduction has been exhausted, and the problems are growing).

Spending on government loans and government guarantees (FDIC subsidies after the banking panic in March 2023) has been significantly reduced by 68.5 billion.”

So the overall picture of the crisis does not change, despite attempts to portray some optimistic signals.

Well, we wish our readers not to worry and to rest peacefully on the weekend and go to work with optimism and faith in the future!