• It also sold CZK 1.07bn of bonds from its portfolio, mirroring the amount sold to markets directly
• The likely reason is to contain borrowing costs from rising further
• Gross financing needs were covered at 19% as of Apr 3

The finance ministry topped up the government bond auction on Apr 2 by CZK 14.4mn, according to auction data reported by the CNB. It brought the total borrowed amount to CZK 1.07bn, or only slightly above the CZK 1bn borrowing ceiling. The main reason for the small additional amount was likely borrowing costs, as they rose by 9bps when compared to March.

It is also likely the reason the finance ministry sold the same amount from its portfolio, namely CZK 1.07bn. The finance ministry typically does that when it wants to sell more debt at more favourable prices, and this has been the case in March. To provide context, the finance ministry sold CZK 17.9bn of bonds in March directly to markets, and CZK 17.9bn more from its portfolio. Up to this point, the first auction in April mirrors developments in March.

Based on this information, We estimate that the value of issued debt instruments that mature after the end of 2025 has reached CZK 97.9bn as of Apr 3. The amount breaks down to CZK 100.5bn of gross issuance of CZK-denominated bonds, and CZK 2.6bn net bond sales from the issuer's portfolio. Gross financing needs are projected at CZK 516.7bn in 2025, which means they were covered at 19% as of Apr 3.

• The withdrawal of energy support schemes reduced transfers from the central government considerably
• Own revenues rose by a decent 3.9%, reflecting weak economic recovery
• Municipal budgets saw the bigger decline in surplus

Local government budgets reported a surplus of CZK 51.1bn (0.7% of GDP) in 2024, lower by 27.9%, according to figures from the finance ministry. The decline reflects the end of energy support measures, which caused a decline in transfers from the central government, down by 3.5%. Thus, while own revenues of local governments rose by 3.9%, total revenues were lower by 1.1%. In all fairness, there was a one-off effect related to own revenue, related to the resolution of Sberbank's Czech branch, which closed in 2022 after Russia invaded Ukraine. It turned out plenty of local governments had accounts with the branch, which they received in full in 2024, leading to a 13.6% increase in non-tax revenue. It is why it overshadowed the contribution of tax revenues, which rose by 1.9%. Meanwhile, expenditure rose by 3.8%, mostly due to current expenses that were higher by 3.6%. These reflect an increase in salaries for teachers and some additional subsidies for education.

Data Download

By government level, municipal budgets had a slightly bigger impact on the lower headline surplus. Municipalities reported a CZK 41.2bn surplus in 2024, lower by 26.1%, Their spending rose much faster than revenue, by 6.6% against 2.9%, reflecting a 4.2% increase in current expenses, and a 13.5% jump in investment. The latter is the big change from 2023, as local governments have started to invest much more in local infrastructure, like communal services. This is likely in line with the true start of EU financing from the 2021-2024 MFF, as payments began in earnest last year. Meanwhile, own revenues rose by a decent 3.5%, but transfers from the central government were higher by only 0.5%, leading to a much softer headline increase.

Meanwhile, regional governments reported a surplus of CZK 9.8bn, lower by 38.5%. They were impacted much more by the end of energy support schemes, which led to a 4.2% drop in transfers from the central government, and a 1.1% decline in headline revenue. Own revenue increased by 5.2%, but it was not enough to make up for the decline in transfers. Spending rose by a contained 0.7%, mostly because of capital expenses, which fell by 14.8% and are likely related to the withdrawal of most industrial subsidies. The latter are typically delivered at the regional government level, which is why municipal budgets were not impacted that much.

All in all, local government budgets performed a bit weaker than hoped for, but mostly in line with the long-term average. On a positive note, the reduction of central government transfers should clear some economic distortions seen in the past few years, as it was pandemic-related subsidies first, and then energy support schemes that largely impacted local government budgets. Moreover, local governments' own revenue has continued to grow, despite a disappointing economic recovery in 2024, which provides hopes that they will keep doing well in the years to come.

• Impact is expected to be mostly indirect, as only 2.7% of Czech exports were to the US in 2024, and only 0.8% of car exports
• The main risk is from lower orders from German manufacturers, who are facing a bigger direct impact
• Competition from Asian exporters may also rise, as they could redirect exports to Europe
• In any case, we expect tariffs are here to stay, as the rationale appears to be the US having a trade deficit with the rest of the world, not much else

The US reciprocal trade tariffs, which were announced on Wednesday (Apr 2), are expected to have an impact on the Czech economy between 0.1% of GDP and 0.6% of GDP in 2025, Jan Bures, chief economist at Patria, estimated. The projection is in line with what we have seen elsewhere, though expectations at the time were for lower tariffs. For example, the finance ministry projected an impact of around 0.4-0.5% of GDP in the case of 10% tariffs on European exports, and the outcome is visibly worse. We remind that the United States levied a 20% reciprocal tariff on all European exports. On the bright side, it will not be on top of the already announced tariff on the automotive sector, at 25%, and the already existing tariff on European motor vehicle exports of 2.5%. Thus, the European car industry will face a total tariff of 27.5%, which is not quite at a prohibitive level.

The main difficult in estimating the impact on the Czech economy is that most of the effects are likely to be indirect. Only 2.7% of total Czech exports were to the US market in 2024, and only 0.8% of car exports are to the US. However, Czech manufacturers are closely integrated with German exporters, which will be far more impacted by the tariffs. Thus, the worst-case scenario will consist mostly of lower orders from German and other European manufacturers, not so much a reduction of Czech exports to the US, which are low to begin with. Another potential risk is higher competition from other major exporters that have been hit by US trade tariffs. The most obvious source is China, which faces a reciprocal tariff of 34%, though other Asian countries are there as well, like Taiwan (a 32% tariff), Vietnam (46%), India (27%), Japan (24%), Korea (26%). There are some expectations that Asian countries may redirect exports to Europe, which will potentially lower prices, but could increasingly put European producers out of business.

There is also the general turmoil that the announcement will likely close, as stock markets are already deteriorating. The decline in sentiment will likely be big, leading to depressed investment and further push on growth. The EU is already saying it is preparing a package of responsive measures, but it remains to be seen how effective these will be, and whether the response will not push down on growth even further. In any case, it appears that US tariffs are here to stay, as there is a very clear goal of reducing US trade deficits behind them. We found an economic argument at the US Trade Representative, which clearly shows that it is trade deficits that matter, not some arbitrary claims of tariff or VAT levels. The wording of the reciprocal tariffs is vague enough, as it speaks not only of tariff levels, but also about non-trade barriers and currency manipulation, thus effectively justifying any tariff level. You could argue this is nonsense, but it is US trade policy now, and we don't think there is any going back until the Trump administration is in power.

Trump hardens trade war. Europe got 20%, China ended up with 34% (E15)

EU ready to respond to American tariffs, says European Commission president (Lidove Noviny)

Trump's tariffs to impact Czech economy, [chamber of commerce vice president] Prouza warns. We should return Dukovany to Europeans, he wants (E15)

Illegal work deprives state of billions (Hospodarske Noviny)

Make wages public? ODS doesn't like it, neither does ANO (Pravo)

Czech drones are conquering the world. They have one major advantage in Ukraine (Lidove Noviny)

Renata Kellnerova's PPF buys Four Seasons luxury hotel for billions (Hospodarske Noviny)

Colonel from Motol [hospital]. She got Rath and Dbaly (Mlada Fronta Dnes)

Easter is pricier, egg prices still rise (Mlada Fronta Dnes)

Having a cold at home would be simpler and cheaper (Pravo)

• The recent shift in US foreign policy has not impacted ANO
• The SPD is gaining pace after allying with smaller nationalist parties
• 7 parties may enter parliament, but 3 are very close to the 5% threshold

ANO, the leading opposition party, remained in the lead in March, polling at 35.8% (down 0.6pps m/m), according to the latest opinion poll of Ipsos, carried out on Mar 24-28. ANO is leading 15pps over Spolu, which polled at 20.9% (down 0.3pps m/m). It appears that the latest events related to the shift in US foreign policy have not impacted voters, at least according to the pollster. We remind that ANO has an ambiguous position towards Russia, and has been friendly to Donald Trump, so it could lose some support with local voters.

STAN, the other ruling party, remained third at 10.3% (down 0.3pps m/m), while the SPD was fourth at 9.8% (up 2.3pps m/m). The sharp increase in the SPD is explained by its coalition with Tricolours, PRO 2022, and Svobodni, which is why the three parties have been taken out of the questionnaire. As it can be expected, the sum of these parties' voters did not reflect into a matching increase for the SPD, but it appears the party is back to its usual 9-10% range.

The only other parties that may enter parliament are the Pirates, at 5.8% (up 0.7pps m/m), the KSCM, at 5.1% (up 0.3pps m/m), and the Motorists at 5% (up 0.2pps m/m). Neither of these is guaranteed parliamentary representation, however, as the margin of error is 1.5pps at this level of support. Regarding the rest, SOCDEM is the closest to the 5% electoral threshold, and it is polling at only 3.5%.

Under this scenario, establishing a majority in the next parliament will not be easy. However, ANO stands the strongest odds of forming a new government, given that it will have plenty of partners to choose from.

• Government initiates withdrawal simultaneously with visit of Israeli PM Netanyahu to Budapest

Hungary will initiate the relevant procedure to withdraw from the International Criminal Court (ICC), PM Office head Gergely Gulyas announced. Speculations about the prospective withdrawal appeared lately after PM Viktor Orban invited Israeli PM Benjamin Netanyahu to visit Hungary. Netanyahu arrived in Hungary yesterday and is due to meet with Orban today. The ICC has issued an arrest warrant for war crimes against Netanyahu and ICC country members are obliged to detain Netanyahu if he enters their territory. The ICC has issued an arrest warrant for Russian President Vladimir Putin as well, which Orban's government had also criticised at the time, arguing that the ICC was used for political purposes.

We do not see significant implications from Hungary's withdrawal from the ICC, but the move will probably trigger further tension and conflict with the EU authorities, enhancing mutual distrust between the two sides.

Foreign minister Peter Szijjarto reacts to Trump's tariffs, expresses sharp criticism of leadership of EU (Magyar Nemzet)

Foot-and-mouth epidemic is spreading, government is setting up disinfection points, the military is also helping (Magyar Nemzet)

Romanian miracle only lasts three days: Hungary will soon overtake Romania - we show you how (Vilaggazdasag)

Zelensky tends to forget, but this is the reality: Without Hungary, Ukraine will be plunged into darkness (Vilaggazdasag)

German giant Harro Hofliger is building its second largest factory in Hungary: Investment is now underway (Vilaggazdasag)

Bank account costs rise five times faster in Hungary than in euro area (Heti Vilaggazdasag)

Government office revokes environmental use permit of battery processing plant in Soskut (Heti Vilaggazdasag)

Poverty data: Stats office KSH rejects accusations of damaging institution's reputation (Heti Vilaggazdasag)

Anti-Orban coalition in EU now consists of 19 governments (Heti Vilaggazdasag)

• Investment to cost HUF 130bn and could be completed by 2028
• Pipeline could cover entire oil consumption of Serbia

The construction of an oil pipeline link between Hungary and Serbia could start in 2026, foreign minister Peter Szijjarto announced after oil and gas group MOL presented the feasibility study for the project. The total investment was estimated to cost HUF 130bn and included paying up a new pipeline section on Hungary's territory with a total length of 190km and expansion of oil transit capacity on the Hungarian border with Hungary. The pipeline will have a capacity of 4.5mn tons per year and will mean to supply the Serbian oil refinery in Pancevo with Russian crude oil, fully covering Serbia's oil supply needs. The construction of the pipeline could be completed by 2028, Szijjarto added. He did not provide details on the financing of the project, although its cost is not unmanageable and we think it could be safely covered by MOL and the state budget.

The energy agreement will mean that Serbia and Hungary will be dependent on each other for the import of the two main energy goods - gas and oil, Szijjarto noted, referring also to Hungary's Russian gas imports via the Turkish Stream pipeline passing through Serbia. We, however, note that the Turkish Stream pipeline also passes through Turkey and Bulgaria so there are more potential transit risks as well. We also consider the project interesting, given the fact that Ukraine is thinking halting Russian oil transit through its territory after its contractual obligations expire at end-2028, which would make the Hungary-Serbia oil pipeline dependent on other oil supply sources. Hungary probably relies on Ukraine's EU accession ambitions in order to require guarantees for uninterrupted Russian oil transit, in our opinion.

Some 81% of Poles want debate of Trzaskowski, Nawrocki, and Mentzen (Rzeczpospolita)

Every tenth Ukrainian doesn't want to return home (Rzeczpospolita)

Reset or long war in Ukraine? (Rzeczpospolita)

March of patriots - KO waits for its coalition partners, PiS mobilises (Gazeta Wyborcza)

PiS tries to scare over immigrants (Gazeta Wyborcza)

Dynamic power tariffs don't yet stir interest (Rzeczpospolita)

Success of e-consulting on bills [Poles have submitted 26,000 opinions to bills in last five months] (Rzeczpospolita)

The collapse of real estate flippers in Lodz (Rzeczpospolita)

How much do law firm execs make? (Rzeczpospolita)

Climate crisis ruins health (Rzeczpospolita)

• Poland will be part of EU countries hit by 20% tariff despite running trade deficit with US
• Tusk implies that Trump has broken friendship and thus PL will support tariff response

PM Donald Tusk reacted to the imposition of a 20% tariff on EU imports on X by noting that "appropriate decisions are needed" and implying Poland will support an EU tariff response on the US. Tusk posted on X that "Friendship means partnership. Partnership means truly mutual tariffs. Appropriate decisions are needed."

Overall, Tusk is in the vanguard of EU leadership now and his post suggests he is likely to back a tough response to the US tariffs. The European Commission has released figures showing US and EU tariffs are roughly even on average, though particular sectors do see large differences. With the US's security guarantees for Europe very unsure, the EU is being compelled to go its own way. Though with Trump there could always be a reversal, the EU will probably see it as prudent to reduce its dependence on the US to the minimum since any exposure to the US creates grounds for future blackmail. This will mean US companies are likely to face much more difficult working conditions in the EU, and this will include tech and defense companies. The EU is bound to seek other partners as well, and perhaps this will tighten relations with Canada, Mexico, Mercosur, and China. In terms of the impact on the economy, it is not expected to be large, and many have put it at 0.2% of GDP or so. However, much depends on how far the escalation goes. Poland is a major defense buyer in the US and did just sign an engineering deal for nuclear power. Poland is likely to continue such deals with the hope of keeping the US engaged, but one imagines there won't be the appetite to sign more deals with a government that positions you as the enemy in trade terms.

• MPC says inflation remains high and much uncertainty remains
• But it notes inflation was lower than expected in early 2025 and may be lower in quarters ahead

The Monetary Policy Council held interest rates Wed., in line with expectations, and justified the decision in its post-sitting statement by citing still above-target inflation and many sources of uncertainty, though it did take a less hawkish view of inflation than in recent meetings. The MPC said that inflation would remain above target in the coming months and would rise in H2 2025 in a no-policy change assumption. The MPC saw uncertainty in inflation expectations, wages, fiscal and regulatory measures, and the US trade policy. It also continued to say that with flat rates inflation would return to the target in the medium term, which we think remains a key sentence.

But the MPC did become more dovish on inflation. It said that inflation would "remain above" the target in the coming months whereas in March it said inflation would be "markedly" above. It admitted outright that inflation data in early 2025 was lower than expected and that could signal that inflation in subsequent quarters might be lower than previously expected as well. It continued to say core inflation would probably continued to be elevated, but did remove some of the grounds for saying so. It did not give a caveat for the potential power price rise, which is somewhat strange since Finance Minister Andrzej Domanski has said many times the government won't allow power prices to rise in Q4. The government might even be thinking of not returning the capacity fee, which would take some pressure off of Q3 as well.

Overall, the MPC's post-April statement was more dovish than the previous one, and it will be interesting to see if NBP and MPC chair Adam Glapinski is more dovish in his comments on Thurs. during his presser at 15:00 CET. Glapinski was very hawkish in March and in subsequent comments. We imagine he will continue to highlight the risks to inflation during his comments, even if he does acknowledge that inflation came in way below the NBP's projection at 4.9% y/y in Q1 vs. the projection of 5.4%. Glapinski has previously said that he would support cuts when it was clear that inflation has peaked and is coming down and forecasts show a high probability the target will be met in the not-too-distant future. The interesting now is that the first condition, which was seen as the harder one to meet, might be met as soon as in Q2. But the March projection is hawkish and doesn't see the target met till way out in the horizon. This means that the MPC will probably wait till the updated projection in July to make a first cut. That is especially since the power price decisions probably won't be made until mid-June or so. If there is any uncertainty about the current inflation picture, then perhaps a decision slips to September, but the latest events have made a July move more likely.

• Post-sitting statement to be published at 16:00 CET
• Glapinski to hold his presser on Thurs. at 15:00 CET
• MPC will still be on hold till Jul-Sep

Poland's Monetary Policy Council chose Wed. to keep its benchmark interest rate at 5.75%, which was in line with the consensus in the seventeenth straight hold, according to a statement. The MPC will publish its post-sitting statement at 16:00 CET. NBP and MPC head Adam Glapinski will give his monthly press conference on Thurs. at 15:00 CET to further explain the decision.

Data Download

Overall, the MPC's rate hold was not in doubt as inflation remains above the target, and Glapinski has been underscoring of late that it is nearly 'double' the target of 2.5%. Glapinski has become more hawkish of late since he has redefined 'meeting the target' as not just getting inflation into the 1.5-3.5% band around the target, but getting to the actual target itself. This hawkish turn followed the October 2023 election. Glapinski's very hawkish recent statements would not suggest any rate reductions until late this year or even next year. His closer acolytes on the MPC like Gabriela Maslowska have thus been saying that they might see a cut only late in the year. However, the data has come in more dovish than expected, and Q1 CPI inflation of 4.9% y/y is well below the 5.4% predicted in the NBP's March quarterly report. This will mean lower inflation this year that will pave the way for a cut in July or September. The removal of the chance power prices will jump in Q4 should be done by mid-June or so. The latest events have made July more likely in terms of the first cut, but it is still possible the council waits till September. We don't expect the rising political pressure to have an impact, but do think it could lead to pressure to a cut earlier than later.

• Median salary was PLN 6,857 vs. avg of PLN 8,364

The median salary in the national economy was some 18% below the average wage, coming in at a gross PLN 6,856.75 a month in October vs. the average salary of PLN 8,363.69, according to data released by Statistics Poland (GUS) on Wed. GUS said the median salary for men was PLN 7,028.98 and that for women was PLN 328.64 less. The lowest decline, or the 10% of lowest earners, received a salary of no more than PLN 4,300 whereas the top decline was PLN 13,372.14. The highest median value was in the information and communication section, where it amounted to PLN 11,000.

Overall, the average salary is a fair distance above the median salary, which does lead many Poles to complain, especially in a world with rising prices and sharp increases in housing costs. A recent poll showed nearly two-thirds of Poles have a negative outlook, and consumer sentiment has remained fairly dour. This does create some political vulnerabilities for the senior ruling Civic Coalition (KO) presidential candidate Rafal Trzaskowski despite the fact Poland's economic growth rate in 2024 of 2.9% was strong, especially in EU terms, and growth this year is to top 3%.

• LCV segment drives momentum with 10.2% growth to 25,072 units
• Cumulative sales fall by 6.5% y/y amid high financing costs, in our view

New automobile sales experienced a 6.4% y/y increase in March, attaining 90,730 units, according to Automotive Distributors and Mobility Association (ODMD) data. This growth succeeded a 14.4% y/y decline observed in February, with the positive trajectory principally fuelled by a 10.2% surge in light commercial vehicle (LCV) sales, which reached 25,072 units. Passenger vehicle sales similarly increased by 5.5% y/y to 91,828 units.

On a cumulative basis, new automobile sales contracted by 6.5% y/y in Jan-Mar, aggregating 276,284 units. Passenger vehicle sales receded by 4.1% y/y, while the LCV segment exhibited a steeper 15.5% y/y reduction. We attribute these declines to elevated financing costs and weakened consumer demand amid inflationary pressures and monetary tightening measures, impacting expenditure across both segments in cumulative terms.

• Monthly price growth slows for third consecutive month
• All product categories drive annual producer inflation deceleration
• Energy inflation cool to 17.0% y/y, supporting broader disinflationary trend

The domestic producer price index (D-PPI) eased to 23.5% y/y in March, down from 25.2% y/y in February, sustaining its prolonged slowdown and marking the weakest reading since Dec 2020, according to Turkstat data. The index registered a 1.9% m/m increase, maintaining a deceleration trajectory for three consecutive months.

Data Download

All key product categories drove the annual deceleration, led by the non-durable goods sector, where inflation receded to 30.9% y/y. Parallel declines were also observed in durable goods and energy goods, with inflation tapering to 32.9% y/y and 17.0% y/y, respectively. Capital goods and intermediate goods inflation exhibited more measured deceleration patterns.

We think the latest D-PPI dynamics signal a broad-based disinflationary momentum across Turkey's production ecosystem, reflecting easing cost pressures amid moderating demand-side strains and potential stabilisation in supply-side dynamics. The persistent deceleration trajectory, now at a multi-year low, highlighted progress in taming producer-side inflation, in our view. Non-durables leading the slowdown suggested softening consumer-driven price pressures, whereas tempered energy and durable goods inflation may indicate subdued input costs and weakening external demand spillovers, we assess.

• Fresh produce prices rise significantly by 16% m/m due to adverse weather and Ramadan
• Rents surge by 91.8% y/y, leading services inflation higher
• Recent political turmoil signals potential inflation pressures in coming months, in our view

Headline inflation moderated to 38.1% y/y in March, easing from 39.1% y/y in February, according to Turkstat data. This corresponded to a 2.5% m/m CPI increase, significantly below the 2.9% m/m market consensus in the Bloomberg survey. Contrary to prior months, services inflation recorded 2.0% m/m - beneath goods inflation, which advanced by 2.7% m/m. The monthly goods inflation aligns with our projections, primarily reflecting a 16.0% m/m surge in fresh fruit and vegetable prices owing to harsh winter conditions and the Ramadan effect. In tandem, inflation for food and non-alcoholic beverages strengthened by 4.9% m/m. Within services, rent inflation led with a 3.4% m/m uptick, followed by a 2.2% m/m climb in prices for hospitality services.

Data Download

CBT's core metrics signalled easing - core C inflation subsided to 37.4% y/y, while core D inflation declined to 37.6% y/y. Both core indicators were below headline inflation for the first time in a considerable period.

The annual consumer inflation slowdown mainly stemmed from a weaker 30.5% y/y increase in goods inflation. Notably, core goods inflation dropped to 19.4% y/y. In our opinion, the marked deceleration in clothing and footwear inflation to 14.8% y/y merits attention, largely attributable to end-season campaigns. Alcohol and tobacco, on the other hand, surpassed the overall headline CPI in annual terms. Meanwhile, services inflation also moderated but remained elevated at 56.3% y/y, propelled by a 91.8% y/y surge in rent. Despite losing momentum, education inflation firmed at 80.4% y/y. Transportation services and telecom services inflation eased during the month in y/y terms.

The latest figures, in our assessment, indicate that inflationary pressures are gradually receding, as reflected in both headline and core measures, yet the pace of moderation remains uneven across different segments. While certain goods categories benefit from easing cost drivers, services continue to exhibit more persistent price pressures, highlighting structural imbalances that monetary policy alone may struggle to address, we assess. On the other hand, it is critical to recognise that Turkstat's data window-spanning the first 24 days of each month so the March inflation print did not fully include any fallout from the latest political developments surrounding IMM mayor Ekrem Imamoglu's arrest. Despite substantial FX interventions, the currency nonetheless experienced a marked depreciation, indicating, in our opinion, a looming upward pressure on inflation in upcoming months. More concerning is the further deterioration in expectations, which could amplify pricing behavior and complicate the path toward lasting stability, we note.

• US market comprises only 6.2% of Turkish exports, limiting exposure
• Geographic position enables Turkey to diversify trade relationships effectively

The Trump administration introduced a 10% tariff on imports from Turkey, which, in absolute terms, is comparatively lower than what other nations face. In Turkey's overall exports, the US market's share remains modest, hovering around 6.2% in 2024 and 6.1% for Jan-Feb 2025. Meanwhile, the US accounts for roughly 4.7% of Turkey's total imports over the same period. Overall, we think Turkey's trade is unlikely to suffer any substantial disruption given its relatively limited exposure to the US market. Moreover, Turkey's trade resilience is further supported by its strategic geographical position between Europe and Asia, enabling continued commercial diversification and potential redirection of affected exports to alternative markets, we assess.

Radio and Television Supreme Council (RTUK) President Sahin: Channels supporting boycott are being monitored by our experts (Hurriyet)

MHP leader Devlet Bahceli: Every party must be Turkish party (Hurriyet)

Trade minister Omer Bolat's boycott reaction: Today is day to protect our economy (Hurriyet)

New era in car washes: Drivers struggle to cope with high prices (Sozcu)

Planned fuel price hike is cancelled by Energy Market Regulatory Authority (Sozcu)

Energy minister Alparslan Bayraktar: Turkey is very large natural gas market (Sabah)

2.9mn passengers use rail systems during Ramadan Feast (Sabah)

Mortgage loan interest rates are at their lowest in 18 months (Sabah)

FinMin Mehmet Simsek: We are ready for stronger cooperation with EU (Sabah)

Authorised customs authorities are regulated for import of certain goods (Sabah)

• President Erdogan publicly re-affirms commitment to orthodox economic policies
• Prolonged political uncertainty threatens inflation targets and reserve build-up

Political developments in Turkey sparked significant financial market volatility last month as authorities detained IMM mayor Ekrem Imamoglu on corruption and terrorism allegations, which the mayor denied, Fitch Ratings stated. The arrest of this prominent opposition figure triggered widespread demonstrations across multiple cities, resulting in further arrests of protesters by security forces, Fitch said. Financial markets responded swiftly, with the Turkish lira experiencing depreciation pressure while government bond yields and credit default swap spreads widened considerably, it indicated.

International reserves decreased precipitously following the political upheaval, falling from USD 171.1bn to USD 163.1bn in the week concluding Mar 21, according to Fitch. The CBT's net foreign asset position continued its downward trajectory until Mar 25, after which the decline moderated, it added. This rapid erosion of reserves highlighted the potential vulnerability of Turkey's economic rebalancing programme to political instability, despite the substantial improvements achieved in external buffers since 2023, the agency emphasised.

Economic policymakers responded decisively to market turbulence, emphasising their unwavering commitment to maintaining tight monetary conditions and enhancing policy coordination, it mentioned. President Erdogan publicly reinforced his administration's support for the existing economic framework. The CBT implemented immediate measures, raising the overnight lending rate ceiling to 46% during an extraordinary meeting on Mar 20, while maintaining the benchmark policy rate at 42.5%, it stated. Additionally, the CBT extended lira deposit auction maturities and issued short-term instruments to manage liquidity conditions, it reported.

Turkey demonstrated greater resilience to financial stress compared to previous episodes since 2018, when currency depreciation, reserve depletion, increased dollarisation, and accelerating inflation severely challenged economic stability, according to Fitch. Turkey possessed adequate capacity to navigate the current volatility given policymakers' commitment to orthodox measures, the CBT's available tightening options, a modest current account deficit and substantially improved reserve buffers relative to earlier periods of market stress, the agency assessed.

The magnitude of the reserve decline since Mar 19 nevertheless emphasised persistent vulnerabilities stemming from heightened political uncertainty, Fitch noted. This situation created substantial challenges for policymakers attempting to preserve the hard-won gains from their economic rebalancing programme, particularly regarding reduced foreign exchange exposure, sustainable disinflation and enhanced policy predictability, it mentioned. The resolution timeline for the political impasse remained unclear, introducing additional uncertainty into economic forecasts, Fitch warned. Prolonged political instability threatened to undermine investor confidence, potentially leading to recurring market volatility, sustained pressure on the lira, continued reserve depletion, deteriorating inflation expectations and increased dollarization, it added. Additional currency weakness posed significant risks to earlier projections that inflation would moderate to 25% by year-end 2025, Fitch reiterated.

Question:

How likely is it that the government or a court will place the CHP under a trustee, given the questions about the legality of the 2023 CHP party congress? What is the legal context for such a decision, and is a court currently examining it or expected to rule soon? Why would Savas and others sue against the extraordinary congress if it could shield the CHP-does their lawsuit affect a possible trustee ruling? Finally, would such a move be more escalatory than a potential Imamoglu arrest, and does the government understand the possible risks?

The question was asked in relation to the following story: Former mayor challenges CHP's extraordinary congress in court

Answer:

The probability of governmental intervention resulting in trusteeship over the CHP appears low, given recent judicial developments. The courts rejected both petitions by former Hatay mayor Lutfu Savas - the first against CHP's 38th Ordinary Congress that was held on Nov 2023 and that elevated current CHP chairman Ozgur Ozel to leadership and the second against the planned extraordinary congress of the party. Trusteeship over CHP was a scenario speculated in pro-government outlets that could impair CHP's internal processes and enable state-appointed oversight, in case the court had invalidated the 38th Ordinary Congress.

Savas had claimed that he engaged with numerous congress delegates and observed several instances of undue influence exerted by the current party leadership and local administration on these delegates to manipulate the election outcome. According to Savas, delegates were offered houses and cars in exchange for votes, with suitcases filled with dollars delivered to hotels where delegates were accommodated and distributed among them. Furthermore, iPhones and iPads were provided as incentives for votes and assurances of employment opportunities were made to some delegates to sway their decisions, ultimately altering the election results, Savas claimed.

Savas previously served as a mayor under CHP and he does not currently endorse the current CHP leadership. Accordingly, it seems plausible that he remains aligned with Kemal Kilicdaroglu, the former CHP leader, which might explain why Savas initiated the legal process to seek the cancellation of the congresses.

It appears the government has comprehended the associated implications from attempts to take over the CHP. We cannot definitively ascertain the potential ramifications for CHP governance, institutional autonomy, or the broader political equilibrium because re-opening legal action against CHP's leadership remains a legal option.

• Operating costs rise by 44.2% y/y as staff expenditures outstrip inflation
• Balance sheet expands by 39.3% y/y, together with 36.4% y/y expansion in total loans
• NPLs increases by 70.5% y/y while capital adequacy ratio hits 18.0% surpassing 12% threshold

The banking sector's aggregate net profit advanced 58.2% y/y to TRY 118.2bn in Jan-Feb, according to BDDK data. The upswing stemmed largely from a 51.8% y/y increase in lira loan earnings alongside a 33.1% y/y gain in lira-adjusted FX loan earnings during the same period. Net interest income after provisions rose 45.2% y/y, propelled by an almost nine-fold y/y surge in other interest and quasi-interest revenues. Non-interest income increased more moderately, up by 36.6% y/y. On the other hand, a 44.2% y/y rise in staff expenditures curbed profitability. We note these figures exceeded annual inflation and surpassed the 30% uptick in the minimum wage instituted at the start of the year. Non-interest expenses also grew by 42.7% y/y.

The banking sector's consolidated balance sheet rose by 39.3% y/y to TRY 34.4tn, together with a 36.4% y/y expansion of the loan portfolio. FX loan growth climbed by 55.4% y/y whereas lira loans rose by 27% y/y. On the asset side, TRY-dominated assets increased by 44.7% y/y, lifting their share to 62.6%, with FX-dominated assets constituting the remainder. The deposits were up by 30.8% y/y, mainly funded by TRY deposits, and term deposits accounted for 65.8% of the total. Liabilities increased by 39.6% y/y, 56.7% of which were in lira. Non-performing loans climbed by 70.5% y/y, raising their loan ratio to 2.0% and driving a 0.4pps uptick. This reflected a 72.8% y/y surge in TRY-denominated NPLs.

The banking sector's standard capital adequacy ratio edged up by 1.0pp y/y to 18.0% at end-February, well above the 12% regulatory threshold. The core capital adequacy ratio also stood at 14%. These collectively suggested robust systemic buffers against credit risk, in our view.

Argentina's exports to the US to be taxed a minimum tariff of 10%, the floor set by Trump at a global level (Clarin)

Energy, food, and chemicals, the main sectors affected by the Trump tariffs (Clarin)

The government says García-Mansilla will remain in the Supreme Court even if his nomination gets rejected by the Senate (Clarin)

Milei traveled to the US to see Trump and get closer to the IMF deal (Clarin)

The World Bank head met with Milei and said he prepares a package of significant support (Clarin)

EmergingMarketWatch coverage of Argentina will be limited on 02 Apr 2025 due to a public holiday.

Trump announces 10% tariff on Brazil (Metrópoles)

Lower house approves Reciprocity Act in response to Trump's tariffs (G1)

Lula government says it is evaluating all possibilities 'to ensure reciprocity in bilateral trade' after Trump's announcement (O Globo)

Falling food prices could lead to lower interest rates, says Tebet (Agência Brasil)

Clearing monetary policy channels is challenge that demands reforms, says Galípolo (Terra)

Lula will sign budget next week, says Tebet (Poder360)

Hugo Motta chooses former house leader Arthur Lira to be rapporteur for project that extends income tax exemption (Carta Capital)

Congress leaders say BCB's autonomy has brought more predictability (CNN Brasil)

• Moody's forecasts GDP growth of 2.0% in 2025
• Moody's says fiscal policy remains focused on raising revenues with some spending cuts
• Moody's says weakening fiscal efforts and/or persistently rising debt costs could lead country's outlook back to stable

Moody's Ratings forecast that Brazil would report a 0.2% of GDP primary surplus in 2025, but said that the debt-to-GDP ratio is still expected to rise to 82% of GDP in the next two years, according to a statement released Wed. The rating agency noted that the BCB's monetary tightening cycle, driven by inflationary pressures and rising inflation expectations, is increasing borrowing costs and weakening debt affordability. The tightening is expected to slow economic activity in Brazil, as Moody's forecast GDP growth of 2.0% for 2025.

Moody's noted that fiscal policy is key for Brazil's rating, assessing that it remains focused on raising revenues with some expenditure cuts. Despite the positive outlook set by Moody's in 2024, the agency said that recent developments suggest compensatory fiscal measures are still needed, especially on the spending side, to offset the impact of rising borrowing costs on the government's debt. It added that a rating upgrade could happen if the government were able to address spending rigidities and introduce structural fiscal measures to sustainably contain the rise of those expenditures. In turn, the current positive outlook could return to stability if fiscal commitment or the government's ability to implement the fiscal framework weakens, or if rising debt costs persistently offset measures towards fiscal consolidation.

Overall, Moody's chose not to touch its Ba1 rating for Brazil with a positive outlook, which was improved back in October 2024. Back then, other rating agencies were surprised by Moody's decision, noting that the fiscal scenario and rising public debt remained a challenge for Brazil. Moody's still seems to have a positive perception of Brazil's fiscal consolidation, noted in the forecast for a primary surplus in 2025. Analysts polled by the BCB forecast a 0.6% of GDP primary deficit in 2025, while the fiscal target is a zero deficit with a tolerance margin of +/- 0.25% of GDP. Since achieving an investment-grade rating is one of Finance Minister Fernando Haddad's main goals for 2026, Moody's report could give him a boost in addressing the challenges of mandatory spending. However, we believe the political landscape and rising pressures from the upcoming elections pose obstacles he may not be able to overcome.

Click here for our comprehensive database of macro forecasts.

• Brazil is among countries to face lowest additional tariffs
• Government says it regrets US decision and states it will continue defending national interest
• Retaliation is not ruled out but is seen as a last resort, in our view

The US will impose a 10% reciprocal tariff on all Brazilian exports, according to Donald Trump's executive order published Wed. Brazil was included in Trump's tariff chart, but its rate remained at the minimum 10% level set for all products from all countries. The tariff will not be added to the already announced 25% levy on aluminum and steel imports.

The Brazilian government expressed regret over the decision, stating that the tariff increase violates commitments under the World Trade Organization (WTO), according to an official statement released after the US announcement. The government highlighted that the US enjoys a trade surplus with Brazil, making the justification for tariffs based on trade balance correction and reciprocity inaccurate. Officials also reinforced Brazil's commitment to defending its interests in negotiations with the US, evaluating all possible courses of action, including an appeal to the WTO. The government also emphasized the recent approval of the Economic Reciprocity Law by the Senate, which is currently under review in the Chamber of Deputies and which will authorize retaliatory measures against US imports.

Overall, the impact on Brazil is to be lower than initially expected as expectations were that there would be a 20% tariff on all Brazilian exports to the US. Brazil maintains a trade deficit with the US, which supported the government's negotiation efforts, though American authorities showed little willingness to compromise. We believe the government will prioritize negotiations to explore possible exemptions in an effort that has intensified in recent weeks. However, it remains uncertain how much flexibility the US will allow in these talks. In our view, Brazil will act within the WTO, but not much will come out of that as the settlement system is dysfunctional. Regarding potential retaliatory measures, we see them as a last resort, though they remain on the table, particularly given the progress of the Economic Reciprocity Law.

• MPC meeting: May 7, 2025
• Current policy rate: 14.25%
• EmergingMarketWatch forecast: 75-bp hike (to 15.00%)

Monetary Policy Committee (Copom) members indicated throughout the week the need for flexibility for the next interest rate decision on May 7, which will be a hike, but whose magnitude has been left undecided, according to the minutes for the latest March meeting. Both BCB Governor Gabriel Galípolo and BCB Economic Policy Director Diogo Guillen emphasized that the uncertain domestic and external economic scenario calls for flexibility in determining the scale of the next increase. Nonetheless, the Copom stressed in its minutes that the still adverse inflation outlook justified its indication that there would be another rate hike in May and that the monetary tightening cycle is not yet over.

BCB Monetary Policy Director Nilton David even suggested that the Copom may raise the Selic more than once at its next few meetings. Additionally, David stated that the persistent de-anchoring of inflation expectations may be linked to the government's fiscal policy, an issue that, while dormant since the beginning of the year, still persists. It is also worth noting that Galípolo highlighted that the transmission channels for the benchmark interest rate in Brazil are less fluid than in other countries, as economic activity remains dynamic despite restrictive interest rates. According to Galípolo, this necessitates larger Selic hikes than would normally be necessary to control inflation.

Domestically, the Copom has observed incipient signs of economic deceleration but noted that economic indicators have not yet signaled a broad-based slowdown. The February industrial production data showed a 0.1% m/m contraction, marking the fifth consecutive month without growth, aligning with government forecasts that the industrial sector would contract 0.2% q/q in Q1 2025. This deceleration reinforces the Copom's view of slower economic activity, which could prompt the committee to limit the Selic rate hike to 50bps in May, which would bring the key rate to 14.75%. However, we believe additional data confirming the slowdown will be needed before the Copom finalizes such a step.

The tariffs set to be announced by US President Donald Trump also add to the uncertainty surrounding the Brazilian economy in the coming months. If Brazil is included in the tariffs to be disclosed late on Apr 2, economic activity could be negatively affected, albeit to a lesser extent than other Latin American countries, such as Mexico. This could help ease inflationary pressure. On the other hand, Trump's tariffs could impact other variables, such as the exchange rate, which, if it weakens, could in fact fuel domestic inflationary pressure. This scenario of multiple uncertainties supports the Copom's decision to stress the need for flexibility in determining its interest rate decision at its next meeting.

Overall, key economic data to be released throughout April will be crucial in determining the magnitude of the next Selic hike. In a scenario of a still-heated labor market and economic activity, driven mainly by agriculture in Q1 2025, and de-anchored inflation expectations (with Copom projecting a return to the 3.00% target only in 2027), we believe the Copom may raise the Selic by 75bps to 15.00% on May 7, taking it to its highest level since 2006. Additionally, the Copom is unlikely to completely rule out another hike in June, which could mark the final adjustment in the current tightening cycle. However, we do not entirely rule out a smaller 50-bp Selic increase, which would bring the rate to 14.75%, if the economic slowdown further materializes in the data and the government's measures to curb food inflation (particularly the reduction of import tariffs on certain products) prove more effective than expected. Regardless of the magnitude of the May hike, it is certain that the monetary tightening cycle is nearing its end, and the Copom is expected to keep the Selic at a restrictive level until 2026, when the monetary easing cycle is expected to begin.

• Industrial output rises 1.5% y/y in Feb, up from revised 1.3% in Jan, but below 2.1% consensus
• Industrial output falls 0.1% m/m in Feb after remaining stable in Jan

Industrial production in Brazil grew by 1.5% y/y in February, quickening from revised 1.3% growth in January, but it did fall short of the consensus expectation for a 2.1% increase, according to data released Wed. by the stats office IBGE. The print marks the ninth consecutive yearly increase and was helped by an additional working day y/y. Mining output fell by 3.2% y/y in February, marking the sixth consecutive decline, whereas manufacturing output rose by 2.3% in the ninth consecutive increase.

Data Download

Output rose in 15 out of the 25 monitored activities in February, down from 17 in January. The largest increases were recorded in vehicles (+13.3% y/y), machinery and equipment (+11.9%), and textiles (+11.7%). On the negative side, the biggest declines were seen in timber (-10.4% y/y) and tobacco (-9.9%). Food output rose 0.4% y/y in February, up from a revised 0.1% increase in January, marking the second consecutive rise after two significant drops.

In terms of goods, durable goods saw the largest increase, with output here rising by 17.1% y/y in February, up from a revised 16.5% the month before. Capital goods' output grew by 8.5% y/y, marking the eleventh consecutive such increase. In turn, the output of intermediate goods (-0.1% y/y) and non-durable goods (-0.7%) fell for the first time after over five months of consecutive expansion.

In m/m terms, industrial output in February came in below expectations for the second consecutive month, indicating that the sector has scaled back production intensity in recent months. The IBGE attributed this slowdown to declining confidence among households and businesses, driven by FX devaluation, monetary tightening, and rising inflation.

Overall, the weak print will likely reinforce the Copom's assessment that economic activity is showing early signs of deceleration, aligning with government forecasts that the industrial sector will contract 0.2% q/q in Q1 2025. This deceleration could prompt Copom to limit the Selic rate hike to 50bps at its next policy meeting in May, bringing it to 14.75%, but additional data confirming the slowdown will be needed before determining the committee's next steps.

• Lula's disapproval rating rises 7pps to 56% from 49% in January, worsening across all social strata
• Some 43% of population sees Lula's government as worse than Bolsonaro's, surpassing those who see it as better for the first time since the beginning of his term
• Some 56% say the Brazilian economy worsened in the past year
• Some 88% say food prices rose in the last month, rising from 83% in January's poll

President Lula da Silva's job approval rating fell by 6pps to 41% in March from 47% in January, according to a Mar 27-31 survey conducted by Quaest and released Wed. Lula's disapproval rating rose by 7pps to 56% from 49% in January, worsening in all social strata and remaining above his approval rating. Some 4% did not answer or did not know. In the breakdown, 29% view Lula's administration as "regular," down from 34% in December, while 31% consider it "positive," up from 28%. Meanwhile, those rating the administration as "bad" rose to 41% from 37% in January. Some 43% see Lula's government as worse than Bolsonaro's, running above those who see it as better (39%) for the first time since the beginning of his term. The survey's margin of error is +/- 2pps.

Data Download

Regarding the economy, 56% of respondents say it has worsened in the past year in a total up sharply from 39% in January. In contrast, those who believe it has improved fell to 16% from 25%, while those who think it remained unchanged dropped to 26% from 32%. Some 2% did not answer. The percentage of Brazilians reporting that food prices rose in the past month increased to 88% from 83% in January, marking the third consecutive rise. The proportion of respondents who believe prices have decreased remained unchanged at 8%, while those who think they remained the same fell to 6% from 10%. Additionally, 53% of respondents said finding a job has become harder compared to a year ago, marking the first deterioration in this perception since July 2024.

Overall, Lula's approval rating continues to decline despite recent government efforts to improve its image, including replacing the leader of the Communications Ministry. This suggests that rising inflation remains a significant concern for the population and that the recent measures to reduce import tariffs on eleven essential products has not had the expected impact in demonstrating the government's commitment to addressing food inflation. In fact, 56% of respondents said they only became aware of the tax reduction during the survey. While the effects of the measure are expected to start being felt in the coming months, its overall effectiveness remains uncertain. It is also worth noting that the Quaest poll presents a different result from the Atlas survey published Tues., which showed a decline in the percentage of the population that considers the government "bad."

Trump excludes Mexico of tariff list for now (Milenio)

US Trade Representative asks Trump to pressure Mexico because of an expensive spectrum, telecom preponderance (El Economista)

Trump blasts the USMCA, says it's the worst trade deal signed by the US (La Jornada)

Trump says the USMCA was a disaster, moves to go away with the trade deal (El Sol de México)

US imposes tariffs on vehicles, will be lower under the USMCA (Reforma)

Mexico isn't saved, Trump imposes tariffs on the auto industry (Político)

US imposes tariffs on beer, Mexico's most exports agro-food (La Jornada)

Peso gains ground after US tariff announcement (Milenio)

Sheinbaum to present again an economic plan amid tariffs, highlights economy's strength and employment data (Animal Político)

Poll says Mexicans and Latinos recommend Pres Sheinbaum to impose tariffs on the US or negotiate with China (El Financiero)

Sheinbaum highlights employment record, increasing revenues in Q1 (La Razón)

Auto sales gain momentum in March, best since 2017 (El Economista)

Mexico prepares more than 1,000kms of railways for 2025 (Expansión)

Authorities give Genaro García Lune four months to appeal his conviction (El Universal)

• New deceleration is consistent with adverse growth outlook
• Weakening auto sales question domestic demand's resilience
• But Q1 performance is not too worrying, sales grow 3.3% y/y

Domestic auto sales grew 1.3% y/y in March, slowing for the second time in a row but remaining in positive territory, the stats office INEGI said on Wednesday. This print comes with a strong m/m increase, on the back of a calendar effect; still, with 127 thousand vehicles sold, March posts the best result so far in 2025.

Data Download

Overall, this new deceleration is consistent with an adverse growth outlook, with analysts slashing their GDP growth projections in the context of uncertainty brought about by protectionist threats from the US. Indeed, weakening auto sales question the resilience of the domestic market, something very concerning considering private demand is set to be the economy's motor this year, as investment and public spending weaken. Still, we believe the prints are not assuring a negative turn, considering auto sales still posted healthy dynamism in Q1, with sales up by 3.3% y/y to 364,780 units.

• Cuts its growth projections but upholds them well above market consensus
• Expects revenues at 22.4% of GDP in 2025
• Financial costs at 3.9% of GDP

The government expects to post a 0.6% of GDP primary surplus this year, according to its 2026 budget pre-criteria, published by the Treasury late on Tuesday. This is an optimistic but reasonable target, in our view. Indeed, the government has not walked back its fiscal consolidation commitment despite a weakening growth outlook, suggesting the government will be implementing pro-cyclical measures amid a likely recession ahead. Still, it remains to be seen if the government sticks to this strategy if the economy's deterioration ends up being worse than currently expected.

The government anticipates a primary surplus of 0.5% of GDP in 2026. Both will come with budgetary revenues above 21.0% of GDP and tax revenues a bit short of 15.0% of GDP, per the administration's forecasts.

The government cut its growth forecasts for both 2025 and 2026. It now sees GDP growing by about 1.9% this year, forecasting a range of 1.5 and 2.3%. This is way off from the market's expectations, with analysts slashing their forecasts constantly. Indeed, we note the market is looking at 0.5% growth this year, per Banxico's latest poll among analysts.

The government is optimistic about CPI inflation too, anticipating it will close 2026 at 3.00%, matching the CB's punctual target. This diverges from the market's expectations too, with analysts expecting inflation to hold at 3.7% by 2026-end.

Overall, the budget pre-criteria comes without significant surprises, in our view. Notably, this is the first pre-criteria published by the Claudia Sheinbaum administration. However, the general presentation shows no change from her predecessor, showing notable optimism that diverges from the market's expectation and reality. Indeed, it would be very surprising if GDP could grow by 1.0% this year, considering reigning uncertainty because of regional adversity; thus, the 1.9% growth forecast for 2025 seems fully unrealistic at this point, in our view.

Click here for our comprehensive database of macro forecasts.

• Next MPC meeting: May 15
• Current policy rate: 9.00%
• EmergingMarketWatch forecast: 50bps cut

While cutting its Monetary Policy Rate (MPR) by 50bps to 9.00%, the CB's board anticipated further similar cuts could lay ahead, setting the stage for a new 50bps in May, which would bring down the policy rate to 8.50%. We are now confident the CB will make such cut, considering the dovish position taken by the Monetary Policy Council (MPC), slowing CPI inflation and a likely recession ahead.

Data Download

CB Governor Victoria Rodríguez echoed the decision statement recently, personally anticipating there will be conditions for a new 50bps cut in May.

The CB cut its policy rate last week unanimously, as expected, with Deputy Governor Jonathan Heath joining the dovish majority for the first time. The minute, to be published on April 10, will show if he or any other board members question if this could be the last 50bps cut in the cycle. However, we believe the economy's weakening growth outlook won't bring many voices in this regard, with most of the board agreeing there are conditions to ponder fast easing in May.

A May 50bps cut could still be derailed, particularly if the financial market responds poorly to the potential imposition of tariffs by the US administration. However, we believe this should not be expected at this point, seeing the currency and the financial system overall performing well so far despite boosted uncertainty.

It remains to be seen if the CB will ponder another 50bps cut in June, which would bring the policy rate down to 8.00%. We believe there is a 50% chance of such rapid cut again in June, considering the dovish CB tone and the weakening growth outlook. However, the CB may want to slow its easing in order to continue its cycle during H2, considering it has vowed to keep the policy rate on restrictive territory, recognizing the need to continue fighting inflation.

In regard to the year-end level of the policy rate, we note that, despite clear disinflation, mid-term expectations remain stubbornly anchored above the CB's 3.00% punctual target, showing the market believes the CB is too tolerant while making its policy rate cuts. Indeed, the market expects inflation to close this year and the next two hovering 3.70%, within the CB's tolerance band but well above the punctual target, according to Banxico's latest poll. Weaker expectations would allow the CB to cut its policy rate a bit further, while remaining on restrictive territory; however, we doubt mid-term inflation expectations will fall much despite a weaker growth outlook. Indeed, the CB has said it sees room to cut its policy rate by 250bps in 2025 while remaining in restrictive territory. Thus, it makes sense that the policy rate shouldn't end the year below 7.50%.

Overall, we are confident the CB will cut its policy rate by 50bps in May. A weakening growth outlook suggests another 50bps cut may come in June, although this will depend on the pace of mid-term inflation and growth expectations. We expect the CB will be cutting its MPR constantly during most of the year. Indeed, there is much uncertainty about the MPR's 2025-end position, given risks of regional protectionism and lingering inflationary pressures; still, we anticipate the policy rate will close the year near 7.50%, barring a trade war in the region.

• Total new orders decrease
• Non-oil companies become less optimistic about next 12 months
• Inflationary pressures ease

Egypt's non-oil private sector contracted in March, following improvements in business conditions in January and February, according to S&P Global. The headline seasonally adjusted S&P Global Egypt Purchasing Managers' Index (PMI) fell from 50.1 in February to 49.2 in March, the lowest reading in three months. The decline below the neutral threshold of 50.0 signalled a mild deterioration in operating conditions.

Data Download

For the first time this year, non-oil companies in Egypt registered a fall in business activity, primarily driven by a weakening in new order intakes. Demand from local and international sources were both restrained, leading companies to scale back operations and spending.

Total new orders decrease, albeit only at a marginal pace that was softer than the historical trend. However, the construction sector performed well in March, thanks to robust growth in output and new work.

This contrasted with a more subdued market environment elsewhere, particularly in the manufacturing and wholesale & retail segments.

Meanwhile, there was an easing of inflationary pressures, with input costs rising only marginally and at the slowest rate in nearly five years. Businesses reported only a slight increase in selling prices, suggesting a more stable pricing environment.

March saw the slowest pace of input price inflation in 58 months. Purchase prices rose only modestly, with anecdotal evidence signalling that a stabilisation of the Egyptian pound against the US dollar alleviated inflationary pressures. A reduction in staff costs for the second month in a row also contributed to this easing.

Consequently, companies raised their selling prices only slightly, continuing the trend observed throughout the first quarter, which recorded the lowest average selling price increases in four years.

Looking forward, expectations for the next 12 months fell to one of the lowest levels in the series history.

Egypt Launches 261,000 Apartments Across Five Phases (Egypt Business)

Egypt & Turkey Partner to Produce Unmanned Military Ground Vehicles (Egypt Business)

El-Sisi and Trump discuss mediation efforts to restore regional calm in phone call (Ahram Online)

• Approved projects include USD 500mn for NG-CARES and USD 80mn for ANRIN 2.0
• Funding will support grants for the poor, maternal health and literacy programmes
• Nigeria and UNIDO signed a USD 175mn partnership to boost industrial growth

The World Bank has approved three financing operations totaling USD 1.08bn to support development projects in Nigeria. According to a statement on the bank's website, the concessional loans aim to improve education quality, strengthen household and community resilience, and expand nutrition programmes for underserved groups. The approved operations include USD 500mn in additional financing for the Community Action for Resilience and Economic Stimulus Programme (NG-CARES), USD 80mn for Accelerating Nutrition Results in Nigeria (ANRIN 2.0), and USD 500mn for the Hope for Quality Basic Education for All (HOPE-EDU) initiative.

The NG-CARES Programme was initially launched to mitigate the economic impacts of the COVID-19 pandemic. It will continue supporting the government's efforts to expand access to livelihood assistance, food security services and grants for poor and vulnerable households. The programme has benefited over 15 million people so far. The ANRIN 2.0 programme seeks to increase access to quality nutrition services for mothers, adolescent girls and children under five. Meanwhile, the HOPE-EDU initiative is aiming to increase foundational literacy and expand access to basic education. It is expected to benefit 29 million public primary school pupils, 500,000 teachers and over 65,000 schools.

In a separate development, the federal government and the United Nations Industrial Development Organization (UNIDO) have signed a USD 175mn programme for country partnership (PCP) to promote industrial growth and job creation. The four-year initiative is structured to receive 85.7% of its funding from donor contributions mobilized by UNIDO, with the Nigerian government providing the remaining 14.3%. Government officials and private sector leaders have expressed optimism about the initiative's potential to boost industrial development and increase access to financing for manufacturers.

• Prices increased by NGN 65-70, aligning with independent marketers
• Hike follows Dangote Refinery's decision to stop naira-based fuel sales
• JP Morgan commended the recent changes president Tinubu made to NNPC management

The Nigerian National Petroleum Company Limited (NNPCL) raised petrol prices on Wednesday (Apr 2) to NGN 925 per litre at its Lagos stations and NGN 950 per litre in Abuja. The new prices mark an increase of NGN 65 from the previous NGN 860 per litre in Lagos and NGN 70 from the NGN 880 charged in the North. This price adjustment follows similar increases by independent fuel marketers like MRS, which recently set prices at NGN 930 per litre in Lagos and NGN 960 in northern Nigeria. Industry experts attribute this price hike to the Dangote Refinery's decision to stop selling petroleum products in naira. The adjustment also reflects ongoing shifts in Nigeria's deregulated fuel market, influenced by supply costs and global oil prices.

Meanwhile, the NNPC has undergone leadership changes, with president Bola Tinubu appointing Bayo Ojulari to replace Mele Kyari as Group CEO. An entire new board was also selected. These changes have been met with widespread approval. Analysts at JP Morgan said the management change is a key step in advancing oil sector reforms, including greater transparency and financial stability. While the immediate impact on oil production may be limited, they believe the shift will support the broader objectives of the Petroleum Industry Act and subsidy removal, helping to improve the country's FX reserves through strategic financing arrangements. Industry stakeholders such as operators, contractors and oil service firms praised Tinubu's selection of a team with deep technical expertise.

Communities issue 14-day ultimatum to shut down oil production (Punch)

NNPCL raises petrol pump price to N950/litre (Punch)

Trump imposes 14% tariff on Nigerian exports to US (Punch)

ECOWAS to meet over tariff imposed by Niger, B'Faso, Mali (Punch)

Targeting Education, Nutrition, Economic Resilience, W'Bank Approves New $1.08bn (ThisDay)

JP Morgan Plans Entry Into Nigeria, To Acquire Merchant Bank Licence (ThisDay)

Stakeholders, JP Morgan's Analysts Hail Leadership Change At NNPCL, Say Its New Dawn (ThisDay)

CBN denies fake circular introducing N5,000 and N10,000 notes (Nairametrics)

• Policy is part of Trump's broader country-specific reciprocal tariff strategy
• Nigeria's exports to the U.S. accounted for 8.7% of the country's total exports between 2015 and 2024
• Analysts suggest the tariffs may have limited impact on Nigeria due to declining U.S. trade

As part of U.S. president Donald Trump's country-specific reciprocal tariff policy, Nigerian exports to the U.S. will now face a 14% tariff, in response to the 27% tariff that the U.S. government claims Nigeria imposes on American goods. The policy marks a shift away from long-standing free-trade principles and is expected to reshape global trade relations. Affecting 185 countries, the tariffs have created uncertainty in global markets. Trade between Nigeria and the U.S. totalled NGN 31.1tn between 2015 and 2024, with Nigerian exports to the U.S. accounting for NGN 16.4tn or 8.7% of Nigeria's total exports, according to data from Nigeria's statistics office. Analysts suggest the impact on Nigeria may be limited, as U.S. trade with Nigeria is relatively small. The country's share of exports to the U.S. has also declined in recent years due to reduced crude oil sales.

Announced during a White House event on Wednesday (Apr 2) titled "Liberation Day", the tariff shift is part of Trump's strategy to boost U.S. industrial production and force open foreign markets. The policy also includes a 25% tariff on all foreign-made vehicles, set to take effect immediately. Nigeria, along with South Africa, Ghana, Ethiopia and Mauritius, is among the African nations affected by the new tariffs. Analysts note that the increasing importation of crude oil by the Dangote Refinery could further shift the trade balance in favour of the United States.

Question:

Do you have the full CBN report?

The question was asked in relation to the following story: Net foreign exchange reserves rose to USD 23.11bn in 2024 - CBN

Answer:

We don't have any official report unfortunately. The CBN governor only announced this in the statement linked in the article.

• Outflows dropped significantly m/m but still exceeded inflows
• Domestic transactions outpaced foreign transactions

Net offshore portfolio flows into Nigerian equity recorded a deficit (net outflow) for the third consecutive month in February, amounting to NGN 6.6bn (USD 4.3mn) according to NGX data. January saw a net outflow of NGN 20.2bn. Looking at m/m dynamics, inflows fell by NGN 7.6bn while outflows dropped much more substantially by NGN 21.3bn. While improving, outflows remain high, suggesting profit repatriation by investors likely due to concerns over naira volatility and macroeconomic uncertainties. Inflation remains a key factor discouraging foreign investment, with high domestic interest rates further straining corporate margins. CPI inflation slowed to 23.2% y/y in February from 24.5% y/y in the preceding month, but this is still significant. At its Feb meeting, the MPC kept the monetary policy rate at 27.5%.

Data Download

The NGX report also noted that domestic transactions decreased by 12.8% m/m in February, while foreign transactions decreased by 40.4%. Total domestic transactions accounted for about 84% of the total transactions carried out in February, while foreign transactions accounted for 16%. Market analysts attribute the reduced foreign participation to investor preference for debt securities due to high yields in the fixed-income market. While the exit of foreign investment might reduce foreign currency inflows, we believe it will not significantly destabilize the economy as long as domestic investors remain active and macroeconomic indicators show resilience.

• Pharma sector exempt from tariff
• Tailwinds for textile sector from higher tariff imposed on competitors
• Electronics and gems & jewellery most impacted by tariffs

US President Donald Trump has opted for a partial approach to reciprocal tariffs, announcing that the U.S. will impose tariffs equivalent to half the rate that other countries levy on American imports. Specifically, Trump has decided to set a 26% tariff on Indian imports, stating that this figure reflects the cumulative tariffs and non-monetary barriers India imposes on U.S. goods, which he claims amounts to 52%. The US' initial phase of a universal 10% tariff on all imports will commence on April 5, with an additional 16% specific to Indian imports starting on April 10, culminating in a total tariff of 26%.

The Indian government is currently assessing the economic implications of the 26% reciprocal tariff imposed by the US, as confirmed by a senior official from the commerce ministry. Commerce Minister Piyush Goyal had previously sought an exemption during his visit to Washington DC for discussions on a bilateral trade agreement, aiming to mitigate potential economic strains and bolster ties. These negotiations are crucial as they may offer relief from the new tariffs and are expected to be finalized by the fall of this year. The government had already made concessions by lowering customs duties in the Union Budget on February 1, reducing peak import tariffs significantly. The new US trade policy allows for negotiations and adjustments if countries address the US's trade concerns, suggesting potential flexibility in these tariffs.

Despite the challenges posed by these tariffs, they present a mixed impact for India. Some sectors might find opportunities amid these changes. For instance, India's textile industry could gain a competitive edge over counterparts in Vietnam, Bangladesh, and China, who will face higher tariffs. This could enhance India's market share in the US, particularly if trade negotiations lead to favourable terms for Indian exports, such as zero-duty on cotton imports.

India's electronics and gems and jewellery sectors are among those most impacted by the newly announced 26% tariff by the US, a significant hike from the previous rates of 0.41% on electronics and around 2.12% on jewellery. These industries are crucial components of India's export economy, with electronics shipments to the US nearing USD 14bn and gems and jewellery over USD 9bn annually. This stark increase exposes these sectors to considerable vulnerability under the new tariff regime.

However, some sectors remain unaffected by this 26% tariff increase. Auto parts and aluminum exports, for instance, are not included under this specific hike but are still subject to an existing 25% tariff. In contrast, several other sectors benefit from exemptions based on a recent executive order by President Trump. Pharmaceuticals and energy exports, which together nearly amount to USD 9bn in trade, have been spared from these tariffs. Trump has previously suggested the possibility of future tariffs on pharmaceuticals, although none have been implemented as of now.

Moreover, certain products are specifically exempt from the US import tariffs, which include copper, semiconductors, lumber, and bullion-precious metals like gold and silver. Additionally, certain energy products and minerals that are not available domestically in the US will also be excluded from these tariffs, ensuring these commodities remain unaffected by the recent increases.

Trump spares pharma from harsh tariffs (Economic Times)

India's farm exports may withstand US tariffs as competitors face steeper duties, says economist (Economic Times)

India's venture debt market grows 58 pc CAGR to $1.23 bn in 2024 (Economic Times)

Manufacturing rebounds: March PMI hits 8-month high at 58.1 (Economic Times)

Sensex tanks 500 points, Nifty below 23,200; IT stocks worst hit (www.indiatoday.in)

Govt's wheat purchase crosses 1 MT (Financial Express)

US tariff on Russian oil could inflate India's import bill (Financial Express)

Sensex down 140 pts at 76,480 after Trump levies 26% tariffs; IT drags 3% (Business Standard)

• Bill faces opposition from both the ruling alliance and opposition
• Minority communities call it governmental overreach

The government introduced a bill in Parliament that proposes significant reforms in the management of lands designated for Muslim use, known as "waqf" properties. These properties, meant for religious, educational, or charitable purposes, are among the largest landholdings in India, with waqf boards managing approximately 900,000 acres across nearly 85,153 properties.

The Waqf (Amendment) Bill, pushed forward by Prime Minister Narendra Modi's administration, seeks to diversify the composition of the central Waqf Council and local waqf boards by including non-Muslim members. Additionally, the bill aims to clarify the ownership of disputed waqf properties, a move the government claims will tackle corruption and mismanagement prevalent under the current system, which is dominated by certain Muslim families and elite groups.

This legislation has sparked concerns among opposition lawmakers and Muslim organizations, who argue that it threatens the property rights of Muslims and could lead to governmental overreach into assets traditionally managed by the Muslim community. Critics, including Kamal Farooqui from the All India Muslim Personal Law Board, question the equity of the proposed changes, comparing them to potential reservations for Muslims on boards managing Hindu temple properties.

Minister of Minority Affairs Kiren Rijiju, who introduced the bill, defended it as a "pro-Muslim reform" aimed at enhancing transparency and efficiency in waqf administration. The bill is set for a vote in the lower house of Parliament, where it faces scrutiny from both the ruling alliance and the opposition.

This legislative move comes at a time of heightened tensions between the Muslim community and the Modi government, with allegations from Muslim groups that the ruling party has supported policies and actions detrimental to their community since coming to power in 2014. The government, however, denies any form of religious discrimination.

• 21% increase in spending compared to FY24
• Asset monetization sustained in FY25

The National Highways Authority of India (NHAI) has exceeded its construction target for FY25, completing 5,614 kilometers of national highways compared to the set goal of 5,150 kilometers. According to a recent statement, NHAI also achieved a record capital expenditure of over INR 2.5tn, surpassing the targeted INR 2.4tn for the year.

This expenditure represents a 21% increase from the INR 2.07tn spent in FY24 and a 45% rise from FY23. The significant funding for this fiscal year included both government budgetary support and NHAI's own resources.

In terms of asset monetization, NHAI utilized three key strategies during FY 2024-25: toll operate transfer (TOT), infrastructure investment trust (InvIT), and toll securitization. The authority successfully monetized assets totalling INR 287.2bn, highlighted by a record InvIT receipt of INR 177.4bn, the highest in a single round for the authority.

It is worth noting that the government front-loaded the outlay to different ministries and departments in H2-FY25, given India's slow growth numbers recorded in H1. This was on account of lower spending in during the election period last year. The government mandated ministries to ensure all capital spending outlay was utilised to ensure economic momentum and sustained infrastructure development.

• Strong domestic demand supported growth
• Pace of job creation moderated despite increased orders and sales
• Inventory building was at highest in seven months

The S&P India Manufacturing Purchasing Managers' Index (PMI) rose to 58.1 in March from 56.3 in February, indicating substantial improvements above the long-term average. India's manufacturing sector achieved significant growth in March, reaching an eight-month high, primarily driven by robust domestic sales and increased production activities. This was the strongest sales expansion since July 2024, attributed to positive customer interest and successful marketing initiatives. Consequently, manufacturers significantly ramped up production at the end of the fiscal year, marking the sharpest increase in eight months.

Data Download

During this period, manufacturers faced rapidly depleting finished goods inventories, recording the most rapid decline since January 2022. To address the diminishing stock levels and meet growing demand, companies increased their input purchasing to the highest in seven months, well above the series average. Despite this surge in input demand, supply chains coped well, delivering materials on time and maintaining reduced lead times for the thirteenth consecutive month.

However, the sector also encountered rising cost pressures, notably from increased prices for copper, electronic items, leather, LPG, and rubber, which pushed input cost inflation to a three-month high. Even though this was still below the long-run average, it led to a modest increase in output charges, the weakest in a year.

On the employment front, despite mild capacity pressures, the pace of job creation moderated compared to February, although it remained robust overall. Looking ahead, manufacturers are optimistic about future production, buoyed by favourable demand conditions, better customer relations, and anticipation of project approvals, setting a positive tone for the sector's outlook in the upcoming months.

• US estimates Indonesia taxes US goods at 64% on average
• US highlights non-tariff barriers Indonesia imposes, such as requirement for domestic components
• US is the second largest trading partner for Indonesia, accounting for 10.6% of non-oil exports in 2024
• Textiles, palm oil, electronics and furniture industries to be affected

The US imposed a 32% tariff on Indonesian exports to the US, according to the latest executive order signed by US President Donald Trump. The move aims to reduce the US trade deficit with Indonesia and ensure fair trade. Trump said that the "reciprocal tariffs" are discounted as they will be only half of what the US estimates that trading partners impose on US exports. In this case, Indonesia's tariffs on US imports are estimated at 64%.

Moreover, the US administration said that Indonesia also limits US goods' access to the Indonesian market by non-tariff barriers, such as the local content requirement in a wide range of sectors. This was evident in the recent dispute with Apple, where Indonesia banned iPhone 16 sales as it had a requirement that at least 60% of its components be produced locally.

In addition, the US administration also noted Indonesia's complex import licensing regimes, as well as the 100% FX requirement on all export proceeds that should be kept in the domestic banking system.

We should note that the US is the second largest export destination for Indonesian goods, after China. Exports to the US accounted for 10.6% (USD 26.3bn) of all non-oil Indonesian exports in 2024, while they were up 19.2% y/y. On the other hand, Indonesian imports from the US were only USD 9.5bn in 2024, down by 4.8% y/y, though still putting the country among the top five import sources.

In terms of products, Indonesia exports a wide variety of goods to the US with the main ones being:

• Textiles and apparel
• Palm oil
• Electronics
• Furniture
• Footwear
• Rubber and
• Fisheries

Afghan deportations begin today amid 'deadline extension' confusion (Dawn)

Govt to announce 'major relief package' today (Dawn)

BNP's Mengal to announce new round of demonstrations tomorrow (Dawn)

Remittances to exceed $3.5bn in March (Dawn)

Corporate profits down 1pc in 2024 (Dawn)

'Pricey' Starlink not an immediate threat, say telcos (Dawn)

Toll rates increased again by up to 50pc (Dawn)

President Asif Ali Zardari tests positive for Covid (Express Tribune)

Jul 1 '24 to Mar 14 '25: Govt borrowing for budgetary support plunges 66pc (Business Recorder)

• US is by far the biggest export market for Pakistani goods
• Textile and garment industry is likely to be hit hard

The US has slapped a 29% reciprocal tariff on Pakistan as part of President Donald Trump's sweeping measures to realign the US trade relationship with its trading partners, media reports. All goods entering the US will face a 10% import tax effective Apr 5, with about 60 countries facing higher duties of up to 50% starting Apr 9. The move aims to match the duties these nations impose on U.S. goods, with Trump noting that US exports to Pakistan currently face 58% tariffs.

The new tariffs could significantly impact Pakistan, which exported goods worth USD 5.4bn to the US in FY24 - by far its largest export destination. The country recorded a USD 3.6bn goods trade surplus with the US in the last fiscal year. The country's textile and garment industry, which account for about a quarter of total manufacturing output, is likely to be especially hit hard. Among South Asian nations, the reciprocal tariff rate on Pakistan is one of the highest, surpassed only by Sri Lanka (44%) and Bangladesh (37%).

Trump sets 17% tariff on Philippine goods coming to America (INQUIRER)

NG budget deficit balloons to P171.4 billion in February (BusinessWorld)

Manufacturing PMI contracts for 1st time in 19 months (BusinessWorld)

Reissued bonds fetch lower rates on BSP bets (BusinessWorld)

Term deposit yields inch higher as market awaits US' reciprocal tariffs (BusinessWorld)

WB approves $800-M energy transition loan (BusinessWorld)

For 4th straight month: Rice tariff collections plunge 63% in February (Philstar)

Minimum wage increase under review, Palace says (INQUIRER)

DBM: Infra spending reaches P1.545-T in 2024 (Philippine News Agency)

DA sees lower rice imports, more robust local palay output (Philippine News Agency)

Recto says use of PhilHealth funds to spare PH from new debts (Philippine News Agency)

• Amount includes PHP 7.0bn sold through the tap facility window
• Average yield is 5.908%

The Treasury sold PHP 37.0bn (USD 648.7mn) of reissued 7-year T-bonds on Apr 2, the Bureau of the Treasury said on Wednesday. The T-bond carries a coupon rate of 6.375% and its maturity date is Jul 27, 2030. It hence has a remaining term of five years and three months. At the auction, the amount on offer was PHP 30.0bn.

The demand totalled PHP 80.7bn, including PHP 71.0bn of competitive bids and PHP 9.7bn of non-competitive bids. The auction committee accepted all non-competitive bids and PHP 20.3bn of the competitive bids. The average yield was 5.908%, lower than 6.019% at the previous auction of the same security held on Mar 4. The five-year PHP BVAL (Bloomberg Valuation) reference rate was 5.893% on Monday.

Later on Wednesday, the Treasury also opened the tap facility window for the security, offering an additional PHP 7.0bn of it. The bids totalled PHP 20.6bn and the entire amount on offer was sold. The total outstanding volume for the series has reached PHP 261.7bn.

We note that the national government's outstanding debt stood at PHP 16.63tn at end-February. We estimate that the debt-to-GDP ratio was 62.1%. The domestic and external portions amounted to PHP 11.22tn and PHP 5.41tn respectively.

• Producer prices increase y/y in 15 industry groups, fall in 7
• Coke and refined petroleum products, transport equipment, other non-metallic mineral products main drivers of acceleration of PPI inflation

Producer prices increased by 0.8% y/y in February, accelerating from revised 0.7% y/y growth in January, the statistics office said on Wednesday. In m/m terms, the PPI fell by 0.2% in February, after dropping by 0.4% in January. The PPI rose by 0.8% y/y in Jan-Feb.

Data Download

With regard to y/y changes in February, prices rose in 15 industry groups and decreased in seven. Producer prices in the manufacturing of coke and refined petroleum products rose by 2.9% y/y in February, accelerating from 1.9% y/y growth in January. Annual price declines narrowed in the production of transport equipment (to 0.01% in February from 0.7% in January) and other non-metallic mineral products (to 1.7% from 3.4%). These industry divisions made the main contributions to the acceleration of the headline PPI in y/y terms in February, the statistics office said.

Notably, producer prices in food manufacturing rose by 0.2% y/y in February, accelerating from 0.1% y/y in January.

We remind that CPI inflation slowed down to 2.1% y/y in February from 2.9% y/y in January. The inflation target range is 2.0-4.0%. The BSP projects March inflation to settle within the 1.7-2.5% y/y range, the central bank said on Monday.

• Deficit slightly wider y/y as both revenues and expenditures register robust expansions
• Revenue growth driven by both tax and non-tax revenues
• Deficit widens by 34.4% y/y in Jan-Feb

The national government reported a budget deficit of PHP 171.4bn in February, the Bureau of the Treasury said on Wednesday. The deficit is 4.1% wider y/y, as both revenues and expenditures posted robust growth.

Revenue collections rose by 12.4% y/y to PHP 251.8bn in February. Tax and non-tax revenues both increased y/y, by 10.9% and 37.1% respectively.

The Bureau of Internal Revenue's (BIR) collection climbed 15.7% y/y to PHP 159.7bn in February. The growth reflected mainly higher collections from corporate income tax (CIT), personal income tax (PIT), excise tax on tobacco and alcohol products, VAT and documentary stamp tax (DST). Collections by the Bureau of Customs (BOC) edged up 1.7% y/y to PHP 71.8bn in February.

Expenditures rose by 8.9% y/y to PHP 423.2bn in February. The growth reflected higher capital expenditures of the Department of Public Works and Highways, especially for its various infrastructure projects. There were also contributions from higher disbursements recorded in the Department of Health and Department of Social Welfare and Development for their leading health and protective services programs, respectively. Primary expenditures climbed 9.9% y/y to PHP 374.8bn in February, and interest payments rose by 1.3% y/y to PHP 48.4bn.

The budget deficit was PHP 103.1bn in Jan-Feb, which compares with a deficit of PHP 76.7bn in Jan-Feb 2024. Revenues increased by 11.3% y/y to PHP 718.9bn in Jan-Feb, whereas expenditures rose by 13.8% y/y to PHP 822.0bn. Tax revenues grew by 12.6% y/y in the first two months of 2025, whereas non-tax revenue dropped by 4.7% y/y. Primary expenditures climbed 11.4% y/y to PHP 669.1bn, whereas interest payments grew by 25.3% y/y to PHP 152.9bn.

We estimate that the two-month deficit is equal to 0.4% of projected full-year GDP, up from 0.3% in Jan-Feb 2024. Last year, the national government reported a budget deficit of PHP 1.51tn or 5.7% of GDP. This year, the government's deficit target is PHP 1.54tn or 5.3% of GDP.

• CPI is up from 2.5% y/y in Feb
• Food inflation accelerates further and provides main impetus to headline CPI
• Services also provides tailwinds to headline inflation

Inflation increased to 3.3% y/y in Mar from 2.5% y/y in Feb. The headline CPI was hovering around zero for the whole second part of 2023 and this momentum carried over to the first four month of 2024, but base effects finally kicked in the latter part of the year. Price growth has continued to inch up at the start of 2025. Food inflation, which has the largest weight in the CPI basket of 41.3%, was firmly in deflation territory until mid-2024, before picking up speed in later months. It increased from 4.6% y/y in Feb to 5.4% y/y in Mar. Non-food inflation fell by 0.5% y/y. Clothes, shoes, household items and household appliances were the key items driving the non-food deflation. Services inflation fell from 1.5% y/y in Feb to 2.9% y/y in Feb.

Data Download

Food and services inflation have thus added 2.2% and 1.2% to headline inflation, respectively. Nonfood has subtracted 0.1% from the CPI.

Data Download

Central bank's current forecast, published in its latest inflation report from 18th of Mar, sees average 2025 inflation at 2.3-2.5% vs the 3.0% CPI target.

• Azerbaijan runs trade deficit with the US
• Tariffs to affect non-hydrocarbon export commodities

US President Donald Trump has put pen to paper on an executive order, rolling out reciprocal tariffs on a handful of countries, with Azerbaijan in the mix, and the minimum customs duty for Azerbaijan has been pegged at 10%.

While trade between Azerbaijan and the US has grown in recent years, Azerbaijan continues to import more goods from the US than it exports. In 2024, Azerbaijan imported goods worth USD 1.61bn from the US and exported only USD 135.3mn to the US. This means that Azerbaijan actually ran a trade deficit with the US.

The recent imposition of tariffs would predominantly impact non-hydrocarbon export commodities, including substances in primary forms resulting from polymerization; intestines, vesicles and stomachs of animals; fresh, chilled, frozen products; tropical and other fruit juices, sturgeon caviar, unrefined, premium first-pressed olive oil; fruit jams, fruit jellies and marmalades, fruit purees and pastes, and other products.

• Reserves up from USD 10.99bn in Feb

FX Reserves rose to USD 11.02bn in Mar from USD 10.99bn in Feb. Reserves have been accelerating in the last couple of years boosted by strong FX purchases by the CBA. The favorable external position generates surpluses on the current account, which puts upward pressure on the exchange rate, so that the central bank intervenes on the market by buying foreign exchange in order to maintain the fixed exchange rate regime. This is exactly what has been happening over the last couple of years as Azerbaijan posted significant current account surpluses of 15.1 percent of GDP in 2021, 29.8 percent of GDP in 2022, 11.5 percent of GDP in 2023, and 6.3% of GDP in 2024. The official FX reserves do not include SOFAZ assets, which currently amount to USD 60.0bn.

Reserves fell in the last two months of 2024 after the central bank resumed dollar sales in October to help the government cover expenses.

Data Download

• Number of items on list reduced by over 100, but goods mostly luxury and non-essential
• Govt also approves universal profit margin cap for imported goods

PM Turchin has signed a decree reducing the number of goods subject to price regulations, according to an official announcement. The decree's full contents are yet to be publicised, but the current announcement states the government will regulate the prices of 211 items as of Apr 15, down from 331 now. The reduction seems substantive, though today's note mentions it mostly concerns luxury and non-essential goods. We expected such a development as inflation management is still a primary concern.

With regard to the regulated goods, there will be 'profitability caps' allowing producers to raise prices within a certain range without seeking official approval. The government will also introduce a universal cap on profit margins concerning imported goos. The relevant details are yet to be clarified as well, though at this stage we do not think the amendments amount to price liberalisation per se.

• Impact to be indirect, affecting exporters to EU market
• Automotive, metal and machine companies could be affected most

The US will impose a 36% reciprocal tariff on BiH imports, according to an annex to the US President Donald Trump's executive order published on Apr 2 regarding the new US global tariffs. The measure should enter into force as of Apr 9.

The share of BiH exports to the US is very small - at 1% of the total exports, but one of the sectors that could be affected the most is the defence industry, Euronews BiH pointed out. In 2024, BiH mainly exported to the US products of the defence industry, Slavica Ceranic from BiH Foreign Trade Chamber told Bloomberg Adria TV. Ceranic noted that the introduction of tariffs on EU goods would have an impact on BiH, which depends on the German market. He estimated that the blow will depend on the structure of the export companies - whether these companies place their final products directly on EU market or they place products that are used as components for products that the EU exports to the US market. Ceranic elaborated that most of the companies export their products to the EU market, but the automotive, metal and machine industries export products that are used in final products that the EU exports to the US and therefore will be affected the most.

The 25% automobile tariffs imposed by the US on EU car imports would also affect BiH automotive industry because orders of components produced in BiH will likely be drastically reduced due to the closing of the American market, but also the reduced need for vehicles in Europe, Armin Hodzic, head of BiH Automotive Industry Group at FBiH Chamber of Economy, said.

• Overall contribution rate will be lowered from 41.5% to 36%
• Amended Law on Contributions should enter into force from Jul 1

The House of Representatives (lower house) of FBiH parliament adopted a bill amending the Law on Contributions that lowers the overall contribution rate on wages at the expense of employers, klix.ba reported. As many as 65 MPs voted for the changes, six were against and five abstained. The amendments have to be adopted by the House of Peoples as well in order to enter into force.

The FBiH government has proposed the amendments in order to relieve the burden on the employers following the recent minimum wage hike. The changes foresee a reduction of the overall contribution rate on wages at the expense of employers by 5.5pps from 41.5% to 36%. Namely, the pension and disability insurance contribution rate would be cut by 3.5pps, while the health insurance contribution rate - by 2pps. Currently, the pension and disability insurance rate is 23%, the health insurance rate - 16.5% and the unemployment insurance rate - 2%. The amended law should enter into force once it is published in the Official Gazette of FBiH and should be applied from Jul 1, 2025. The government did not say what the fiscal effect of the contribution rate cut would be. Note that the government hiked the minimum wage in the entity for 2025 by 62% to KM 1,000. The 2025 budget foresees KM 100mn in subsidies for SMEs to help them adjust after the minimum wage hike.

• Next meeting scheduled for Apr 10
• Main stumbling block is HDZ BiH's insistence on electoral reform
• HDZ BiH leader Covic is unlikely to back down from request, political crisis to persist

The Troika (SDP, NiP and NS), HDZ BiH, and RS opposition parties (SDS, PDP and List for Justice and Order) did not sign a coalition agreement on Apr 2, as earlier expected, but agreed to meet again on Apr 10 in Banja Luka. SDP leader Nermin Niksic said after the meeting that all participants agreed on the importance of EU integration and the adoption of the two remaining laws on the High Judicial and Prosecutorial Council and the courts. He added that HDZ BiH prioritised the adoption of changes to the election law, which is not a novelty. Niksic also said that Nebojsa Vukanovic (leader of RS' List for Justice and Order) would be appointed BiH security minister after a coalition agreement is signed. Vukanovic left the meeting disappointed and said he would not participate in further talks.

The main stumbling block to reaching an agreement on the new ruling majority at BiH level, apparently, is the main Croat party HDZ BiH and its request for electoral reform. HDZ BiH has been insisting for a long time that Croats should be able to elect their legitimate representatives, i.e. Bosniaks shall not have a say in the election of these representatives. The party refused to recognise Zeljko Komsic as Croat member of BiH presidency claiming he was elected thanks to the votes of Bosniaks. After last evening's meeting, HDZ BiH leader stated that the time has come for changes to the election law. He said that his party has proposed a bill amending the election law concerning the election of BiH presidency members and the Central Election Commission that will be on the agenda of the House of Peoples of BiH parliament on Friday. Covic insisted that Croats must have the right to elect their representative in the BiH presidency. Regarding the election law amendments, he made it clear that he would not allow the next election cycle to begin without resolving the issue.

We expected that the party of Dragan Covic would try to bargain its support for the new ruling majority by pushing for electoral reform. We also do not expect him to back down because he sees a great opportunity to push through the changes he has been insisting on for so long. Covic is well aware that without the support of HDZ BiH, a new ruling majority cannot be formed, so his position is strong. Thus, we do not expect any breakthrough soon, given that the Bosniak parties remain reluctant to accept HDZ BiH's proposals. This means that the political crisis will persist even longer.

Interpol rejects BiH's request for an international arrest warrant for RS President Dodik (Dnevni Avaz)

SDP leader Niksic confirms: Vukanovic will be appointed minister only after coalition agreement is signed (Dnevni Avaz)

SDS leader Milicevic: We are facing the biggest crisis since Dayton, I hope that we will sign the agreement on Apr 10 (Dnevni Avaz)

NiP leader Konakovic: There was no ultimatum regarding election law; everyone understands the situation in BiH (Dnevni Avaz)

Niksic: We have different views regarding election law; next meeting on Apr 10 (Dnevni Avaz)

New majority holds talks in Sarajevo: Meeting in Banja Luka is agreed upon (Nezavisne Novine)

Arms exports from BiH surged by 400% in ten years (Nezavisne Novine)

BiH is also targeted by Trumps' reciprocal tariffs (Glas Srpske)

• 5.3% hike of salary base in state institutions to be applied after 2025 budget is adopted
• Pay raise not to cover top officials

The House of Peoples (upper house) of BiH parliament adopted today changes to the law on salaries of employees in BiH institutions, which foresee a wage hike for civil servants but not for politicians, whose wage coefficients are higher anyway. The hike will not refer to ministers and their deputies, MPs and members of BiH presidency. The law was backed by the House of Representatives on Dec 17. It will enter into force on the eighth day after its publication in the Official Gazette of BiH and will be applied starting from the month after the adoption of 2025 budget.

Note that in November, the Council of Ministers of BiH decided to hike the salary base in the state-level institutions for 2025 to KM 631.5 from KM 600 in 2024. The finance ministry has calculated that the increase in the salary base would cost KM 52.5mn a year to the budget. The decision was supposed to be applied from Jan 1, but given that BiH institutions still have no budget for this year, the hike was postponed.

• One more F-16 Block 70 plane to arrive in April, remaining six to be delivered by end of 2025
• Second batch of eight F-16 planes to be delivered by end of 2027

The first Bulgarian F-16 fighter jet arrived in Bulgaria at the Graf Ignatievo air base in on Apr 2, local media reported. PM Rosen Zhelyazkov and defence minister Atanas Zapryanov welcomed the plane. The two-seat F-16 Block 70 left Lockheed Martin's production base on Mar 31 and first flied from the U.S. to Spain, and then from Span to Bulgaria. It was refuelled in the air by a Tennessee Air National Guard KS-135 flying tanker. Upon landing in Bulgaria, the aircraft insignia were changed to the distinctive signs of the Bulgarian Air Force. The official ceremony of welcoming the first F-16 out of all the sixteen planes that Bulgaria had paid and ordered will be held on Apr 12.

PM Zhelyazkov reminded that Bulgaria has not received new military aircraft for some 35 years and noted that eight of the F-16 will be delivered to Bulgaria by the end of 2025. He added that the F-16 is also a symbol of Bulgaria's strategic partnership with the U.S., alongside the acquisition of the Stryker infantry fighting vehicles and the Javelin anti-tank missiles.

We recall that the government signed two contracts with the US for two batches of eight F-16 Block 70 each in 2019 and 2022. The total price of all the sixteen plans reached BGN 5bn. One more aircraft is expected to arrive in Bulgaria in April, and the other six - by end- of 2025. The second batch of eight F-16 aircraft are scheduled to be delivered by the end of 2027. We recall that the pandemic resulted in a delay of the production and delivery of the first batch. A total of 32 Bulgarian pilots will be trained and prepared to fly the F-16 planes.

IT sector in focus: Demand for programmers has decreased (Capital Daily)

Budget deficit doubles to BGN 1.9bn in Jan-Mar (Capital Daily)

With such opposition, this New Beginning cabinet is going to last 100 years (Sega)

Millions for consultants on failed recovery plan projects go to waste (Sega)

First Bulgarian F-16 lands on home soil (Sega)

MPs to vote no-confidence motion against Zhelyazkov cabinet today (24 Chasa)

GERB leader Borissov on new F-16: Today is historic day for Bulgarian Air Force (24 Chasa)

MPs to vote on first no-confidence motion against Zhelyazkov cabinet (Trud)

Prime Minister and defence minister welcome first Bulgarian F-16 at Graf Ignatievo airport (Trud)

• Only 687,000 poorest pensioners to receive bonuses worth BGN 50 per everyone
• Decision in line with already established tradition of providing additional payments to retired people before Christmas and Easter

The government will allocate BGN 34.4mn from the budget to pay a one-off BGN 50 bonus to the pensions of the poorest 687,000 retired people for Easter, local media reported. The bonuses will be allocated only to pensioners with a pension below the poverty line of BGN 638. We recall the former caretaker government decided to provide bonuses only to the poorest pensioners at end-2024, as well. To compare, all retired people were entitled to the bonuses in the previous years and their cost for the budget was higher. The provision of additional payments to the retired people before Christmas and before Easter has become a tradition over the past two decades.

We recall that pensions will be hiked by 8.6% as of mid-2025, continuing the series of consistent pension hikes in the past five years. In 2025 and 2026, the social security contributions will stay unchanged, but they are projected to rise as of 2026 and 2027, in an effort to secure funds to cover the pension increases.

• Country first to coordinate with EU member states

Croatia will not immediately react to possible tariffs from the United States, but will first coordinate its position with the EU, PM Andrej Plenkovic said on Wednesday, ahead of the announcement of US tariffs to trading partners around the world. The premier underlined that trade policy is one of the joint policies within the competence of the Union, adding that the President of the European Commission, Ursula von der Leyen, had spoken with the heads of all member states in order to harmonise the policy. Plenkovic said that the competent Croatian ministries have analysed the situation, which products are important to Croatia, in case there are reciprocal EU measures against the United States. He also said a trade war between partners can only harm everyone, including citizens on both sides.

Details of US President Donald Trump's plan for "Liberation Day," as he has dubbed the date he will announce the new tariffs, are still being formulated and are known only to the closest circle within the White House. American trading partners from the European Union, Canada and Mexico, and the new, unusual alliance of China, Japan and South Korea in this matter, have announced reciprocal measures to the USA. On Wednesday, Trump announced that the USA will start levying 25% tariffs on all imported vehicles from Thursday, Apr 3, while duties on auto parts will begin in May.

Will the Croatian language survive the digital age: Why not include linguists in deciding the fate of the nation? (Vecernji List)

Strike continues: In modular teaching, focus has shifted to practice, unions are concerned about the cut in hourly wages (Vecernji List)

Fight for third pension pillar: [Labour minister] Piletic rejected funds' endeavours - We do not need a third pension pillar (Vecernji List)

Average net salary in Croatia EUR 1,474, managerial salaries above EUR 3,000 (Poslovni Dnevnik)

Croatia will not immediately react to possible US tariffs (Poslovni Dnevnik)

Vehicle tariffs raise prices, but also inflation (Dnevnik)

HZZO hunting for fake sick leave: Every fourth one lasts unreasonably long, doctors also receive fines (Dnevnik)

Defence minister Anusic: We have achieved the NATO goal. But we cannot just buy weapons, we must strengthen our military industry (Jutarnji List)

Plenkovic: Croatia will not immediately react to US tariffs, we will coordinate with the entire EU (Jutarnji List)

Education Unions: 7,200 teachers went on strike in Dalmatia; Fuchs' ministry: It's almost half that! (Slobodna Dalmacija)

Trade war: Trump announces tariffs (Novi List)

• Fall in Q1 biggest in last four years
• Highest demand for workers reported for salespersons, cooks, waiters, warehouse workers, bookkeepers
• Labour market performance шд remain overall stable in next months - certain worsening is possible due to likely easing economic activity, preparations for high season to play opposite effect

The labour demand fell further in March as the Online Vacancy Index (OVI) of the Institute of Economics, Zagreb (EIZ) decreased by 2.9% y/y in the month, with the fall thus easing from 10.9% y/y in February. In Q1, the index thus fell by 5.9% y/y, which is the biggest quarterly decrease in the last four years. The Institute said that according to seasonally adjusted data, the OVI index rose by 3.8% m/m in March, which points to a short-term improvement in the labour market, most likely associated with seasonal tourism employment.

The five most sought-after occupations in March were salesperson, cook and waiter (which is in line with the preparation for the high season in tourism), as well as warehouse worker, the same as a year ago, with the only difference being that bookkeepers have taken over the fifth place instead of drivers. Of these five occupations, warehouse workers and bookkeepers recorded an increase in the number of job advertisements on an annual level and together contributed to OVI's increase with 0.2pps, while the top three occupations had a negative contribution of 3.5pps. In the last year, job advertisements for cooks had the highest negative contribution to the index, with 1.5pps, while job advertisements for professors and teachers had the highest positive contributions, together accounting for 1.3pps. The largest increase in the number of job advertisements in absolute terms in March, compared to February, was recorded for salespersons, warehouse workers, waiters, cooks, and repair workers, which probably explains the index growth on a monthly level. As in February, the share of advertisements seeking high levels of education increased significantly (from 19.2% to 24.2%), while the share of advertisements seeking low and secondary levels of education fell from 80.8% to 75.8%. In March, only advertisements offering permanent employment contributed positively to the total index, by 3.2pps, while the number of advertisements offering fixed-term employment fell by 12% y/y.

The registered unemployment rate inched down by 0.2pps m/m to 5.2% at end-February. Given EIZ comments and data, we think that the labour market performance in the next months might not be as positive as previously expected. As European economies remain weak, geopolitical tensions are still in place, while global gas prices increase has resumed and the US plans to introduce additional protectionist measures in foreign trade, we expect the economic expansion this year to be slower than previously expected. At the same time, as it seems that the preparations for the high seasonal activity in tourism, agriculture and construction have already begun, there are good prerequisites for better performance in the months to come.

• 2024 exports to US amounted to USD 141mn
• 64% of total exports were accounted for by ferroalloys

The US has imposed new tariffs on more than 180 countries around the world, including a 10% tariff on Georgia.

However, this does not mean that the tariffs will be imposed on all Georgian exports, as the US decision is accompanied by an extensive list of exceptions. The list also includes ferroalloys, which are Georgia's largest export to the US. In particular, in 2024, ferroalloys accounted for USD 90mn, or 64%, of Georgia's USD 141mn exports to the US. However, the list of exceptions does not include, for example, wine, which is also one of the top 10 export goods to the US. In any case, the impact on the country would be negligible given the small reported amounts.

TOP-10 products that Georgia exported to the US in 2024:

1. Ferroalloys - USD 90.2mn
2. Pipes, tubes and hollow profiles, seamless, of ferrous metal - USD 8.4mn
3. Aircraft parts - USD 7.2mn
4. Natural grape wines - USD 7.1mn
5. Hydrogen, inert gases and other non-metals - USD 5.3mn
6. Fruit and vegetable juices - USD 4.6mn
7. Undenatured ethyl alcohol, with an alcohol concentration of less than 80% vol., alcoholic beverages - USD 2.7mn
8. Glued plywood, wood veneer panels and similar materials made of mixed wood - USD 1.8mn
9. Mineral and fresh waters - USD 1.6mn
10. Wooden construction products - USD 1.1mn.

• The West has sanctioned more than 200 representatives of the Georgian Dream, of whom 98 have been named publicly, while the rest have been subject to anonymous visa restrictions

Transparency International Georgia has published a full list of those individuals that have been named publicly. The list includes: members of government and Parliament, high-ranking officials of the law enforcement and security systems, Georgian Dream members and associates, judges, municipal leaders, business leaders, propagandists and family members of these individuals.

A number of countries have imposed sanctions on these individuals for various reasons, including: cracking down on peaceful protesters, undermining democracy, stalling Georgia's European integration process, advancing Russian interests in Georgia, rigging elections, corruption, propaganda, and going against the will of the Georgian people.

• CPI increases from 2.4% y/y in Feb
• Food grows by 6.6% y/y and contributes 3.3% to headline inflation
• Headline inflation is already running above levels forecast by the NBG

Headline inflation was well-contained during the whole of 2024 due to favorable base, moderating global food and energy prices, and restrictive monetary policy. These factors ensured that price growth also remained consistently below the CPI target of 3.0%. However, 2025 has started with a faster pace of price growth, which reached 3.5% in Mar vs 2.4% y/y in Feb.

Data Download

Food was in deflation territory for some months in 2024 and only reared its head towards the end of the year. It has now came to 6.6% y/y in Mar from 3.7% y/y in Feb. Given that it accounts for 34.5 percent of the CPI basket (food weight was 33.4% in 2024), it has added 2.3% to Mar inflation. Apart from food, health inflation also rose strongly by 8.8% y/y and contributed 0.71% to headline inflation. Services inflation was also robust at 6.3% y/y in Mar and contributed 0.30% to the CPI.

The NBG argued at its last policy meeting that it sees inflation close to the target in the first half of 2025. Subsequently, partly due to base effects, the NBG expected that inflation may temporarily overshoot the target and stabilize around 3% in the medium term. However, the acceleration of inflation above the target already in 1Q points to upside risks to NBG's current forecasts.

• US annex exempts main Kazakh exports, i.e. oil, uranium, silver, ferro-alloys
• Ministry will negotiate to avoid tariffs anyway, denies creating trade barriers
• Exchange rate volatility and imported inflation greater short-term risks for Kazakhstan

The Kazakh trade ministry has released a publication commenting on the new reciprocal tariffs introduced by the US. We remind that the tariff being levied on Kazakhstan is 27%, the highest in all of Central Asia. Yet, as we noted in our first publication, there is an official US annex listing goods that will be exempt from the tariffs. The annex covers oil, uranium, silver, and ferro-alloys among others. The four account for over 90% of Kazakh exports to the US market.

The current publication confirms this as the trade ministry says only 4.8% of Kazakh exports are not covered by the exemptions. The respective export revenues amounted to USD 95.2mn in 2024 (out of over USD 2bn). Nevertheless, the Kazakh authorities plan to negotiate with the US to avoid the tariffs as a whole, which we expected as well. Kazakhstan denies creating trade barriers for the US, while the Trump administration accuses it of charging a 54% tariff.

We note that the general rationale behind the US reciprocal tariffs does not apply in Kazakhstan's case as US exports to the local market have consistently exceeded imports from Kazakhstan. If the tariff exemptions are implemented without any caveats, the biggest risks for the Kazakh economy will in turn stem from the likely tenge depreciation and the overall price increase of imported goods. From a longer-term perspective, Kazakhstan's efforts to address the limitations of a resource-driven economy could be hampered as the tariffs would likely prevent non-commodity exports from entering the US market.