Summit Signals Resilience in Russia–India Strategic Partnership

Navigating the U.S.–Russia Tightrope

Defense and Civil Nuclear Cooperation Take Center Stage

Geopolitics: India’s Diplomatic Neutrality and Strategic Hedging

Strategic Diversification or Strategic Tightrope?

Source: Reuters

In Australia, Q3 GDP fell short of expectations, rising just 0.4% (2.1%yr). However, much of the disappointment was tied to a run-down of inventories, masking a much stronger showing for domestic demand, up 1.2% (2.6%yr). The public sector added to growth via consumption and investment, although the scale of support offered through both channels is easing as cost-of-living relief measures wind up and existing infrastructure projects progress.

New business investment was in the spotlight in the private sector, surging 3.4% (3.8%yr). Data centres and aircraft were key drivers, but there are some early hints of a broadening in the investment pulse across both consumer and business-facing sub-sectors. This trend has positive implications for supply capacity and productivity which are explored in more detail by Chief Economist Luci Ellis in this week's essay.

Consumer spending was also a key contributor, lifting 0.5% (2.5%yr), spot on our expectation. This was mostly driven by spending on essentials, including electricity and superannuation fees – the latter owing to Q3's superannuation guarantee increase. Although discretionary spending was a touch softer, both our internal data and recent ABS data point to a pick-up in this category into year end. Going forward, one of the key risks is the fading of the tailwinds associated with easing inflation, interest rate reductions and tax cuts for disposable incomes and spending.

The boost to wealth from rising house prices is also important to keep in mind, the Cotality index surging another 1.0% (7.1%yr) in November. Recent gains have been driven by lower cost tiers of the market, suggesting affordability remains a constraint but that households continue to adjust expectations to transact. Dwelling approvals have largely moved sideways this year, but the pipeline remains robust and should go some way to alleviating tight supply in coming years. For our in-depth view of the housing market, see the latest Housing Pulse.

Before moving offshore, a final note on trade. Partial data released earlier this week showed the current account balance widened slightly in Q3, from –$16.2bn to –$16.6bn, chiefly driven by a larger trade surplus, a trend that looks to have persisted in the goods balance into October. In real terms, the external sector subtracted 0.1ppts from GDP in Q3. This speaks to the longer-run structural headwinds for 'traditional' commodity export channels; however, that does not preclude burgeoning areas of opportunity gaining scale – services exports of software licensing being an example.

In the US, the ISM Services PMI rose 0.2pts to 52.6pts in November, although that still leaves all sub-components excluding prices well below their ten-year pre-COVID average. There were notable increases in the backlog of orders (+8.3pts), imports (+5.2pts), inventories (+3.9pts) and supplier deliveries (+3.3pts), while new orders (-3.3pts) and prices (-4.6pts) both exhibited falls. The sizeable fall in the prices component primarily reflected declines in gasoline prices. The manufacturing PMI meanwhile declined 0.5pts to 48.2pts, reflecting falls in new orders (-2pts), employment (-2pts), supplier deliveries (-4.9pts) and the order backlog (-3.9pts). The prices component increased by 0.5pts to 58.5pts but remains well off its highs. All told, both surveys point to sub-par momentum, but not aggregate contraction.

In Europe meanwhile, the flash estimate for November indicated prices fell 0.3% in the month, reflecting falling energy costs. In annual terms, inflation accelerated to 2.2%, backed by a 3.5% gain in services prices. Looking ahead, there are some downside risks to the headline component following a decline in wholesale gas prices. In a speech this week, ECB President Lagarde noted that underlying inflation pressures are consistent with achieving the inflation target, but that risks to the outlook remain two-sided.

Source: Westpac Banking Corporation

Temporary Truce Drives Short-Term Export Rebound

Import Growth Remains Modest as Domestic Demand Lags

Manufacturing Weakness Undermines Export Momentum

Beijing’s Strategic Focus: Domestic Demand and Self-Reliance

Trade Surplus Grows, But Below Historical Average

Truce Offers Breathing Room, Not Resolution

Source: Reuters

After Russia launched its full-scale invasion of Ukraine almost four years ago, neighboring Estonia quickly ramped up defense spending. Next year, it's expected to be the highest in the European Union relative to the size of its economy, at over 5% of gross domestic product. But the Baltic state doesn't just stand out for its procurement of military equipment, it's also making its mark when it comes to manufacturing.

The war prompted Estonia to build up a defense industry that was pretty much non-existent. Companies weren't allowed to manufacture weapons until 2018. Now, the country of 1.3 million people is nurturing a growing ecosystem of local defense startups, as my colleague Ott Tammik reports. With governments across Europe beefing up their military budgets, the hope is that Estonian companies will start to attract foreign customers.

The sector has grown quickly. There are almost 200 companies in the Estonian Defence and Aerospace Industry Association, including drone maker Threod and unmanned vehicle producer Milrem. Some were founded by Ukrainians or use the war to test out products. The government in Tallinn said early this year it would set aside €100 million to start one of Europe's first funds explicitly focused on investing in weapons.

Estonia's tiny size and the fact that it's so new to the industry, however, pose challenges. European governments typically purchase weapons from US manufacturers or their own domestic defense giants. Despite broad public support for bulking up Estonia's military, some of the efforts have also run into red tape and community resistance. The concern is that legal and bureaucratic obstacles to arms production could slow things down at a critical moment.

But the numbers are stacking up. Sales by Estonian defense companies doubled between 2022 and 2024 to €500 million ($582 million), the most recent data available. The government spent a similar sum on investment in the industry last year. And when it comes to demand for weapons and equipment, the trajectory is definitely upward.

Poland: OpenAI agreed to buy Neptune, a Warsaw-based startup that makes tools for analyzing different versions of artificial intelligence models. The ChatGPT developer has been using Neptune's products for more than a year and now plans to keep them exclusively for its own use.

Bulgaria: Tens of thousands of people protested against the government's tax and spending plans in the biggest show of dissent for more than a decade. After a group clashed with police, the minority administration withdrew its budget to revise it. Prime Minister Rosen Zhelyazkov refused to resign, saying the Balkan country needs stable leadership as it prepares to join the euro on Jan. 1. A no-confidence vote may take place next week.

Ukraine: The EU proposed two options to cover Ukraine's financial needs, suggesting either a loan backed by frozen Russian assets or one backed by the bloc's own budget. Meanwhile, Vladimir Putin held "very useful" talks with US envoys, though they failed to reach agreement on a plan to end his war.

Hungary: Prime Minister Viktor Orban said he's ready to throw a financial lifeline to Budapest, where the opposition leadership blames the government's tax policies for pushing the capital city to the brink of insolvency.

Poland: The country should prioritize cheaper onshore wind energy over offshore projects to stay competitive in the global economy, according to the head of the power grid operator.

As we head deeper into winter, people might be thinking of where to go skiing. Appetite to hit the slopes has been great for Polish ski-lift operator PKL. Now the state-controlled company is looking at going public, with an IPO possibly in the first quarter of next year, people familiar with the plans said.

As the US pushed to impose its peace plan on Ukraine, Europe was getting a glimpse of what NATO's eastern frontier might look like should the Americans disengage. The lush, mountainous region of Transylvania in Romania showcased how the continent might be defended with less US involvement should Russian troops cross into NATO territory. The brigade of soldiers participating in the exercise was all from Europe and commanded by the French. Indeed, NATO's deterrence on its eastern flank needs to be increased, not decreased, Romania's foreign minister told Bloomberg in an interview.

Source: Bloomberg Europe

The Reserve Bank of India (RBI) cut its key repo rate by 25 basis points on Friday and took steps to boost banking-sector liquidity by up to US$16 billion (RM65.8 billion) to support a "goldilocks economy".

The six-member monetary policy committee voted unanimously to lower the repo rate to 5.25%, in line with a consensus view, and maintained a "neutral" stance, suggesting room for further rate cuts.

The central bank has now cut rates by a total of 125 basis points since February 2025. It held rates in August and October.

The Indian economy is facing a "rare goldilocks" period, RBI Governor Sanjay Malhotra said in a video address.

Since October, India's economy has experienced rapid disinflation leading to a breach of the central bank's lower threshold of tolerance, said Malhotra, adding that growth has remained strong.

Given these macroeconomic conditions, "policy space" exists to support growth, he added.

The RBI also decided to conduct open market operations of one trillion rupees (US$11.14 billion or RM46 billion) to buy bonds this month, and another US$5 billion in forex swaps to add liquidity to the banking system and speed up transmission of lower rates.

India's benchmark 10-year bond yield dropped nearly five basis points to 6.4581% after the central bank's moves. The rupee fell 0.1% to 89.87, while the benchmark equity indexes were up 0.1% each.

Stronger growth; lower inflation

The central bank raised its GDP forecast for the current year to 7.3% from its previous estimate of 6.8% while the inflation projection was lowered to 2% versus 2.6% in October.

The South Asian economy expanded at a sharper-than-expected clip of 8.2% in the July-September quarter but growth is expected to slow as the full impact of up to 50% tariffs imposed by the US hit exports and sectors from textiles to chemicals.

External uncertainties could pose "downside risks" to growth, Malhotra said.

On the other hand, retail inflation stood at an all-time low of 0.25% in October and is expected to remain soft in coming months. The central bank targets inflation at 4%, within a tolerance band of 2% on either side.

"Underlying inflation pressures are even lower," Malhotra said, pointing to a "generalised" decline in price pressures.

Source: Theedgemarkets

RBI Cuts Rates as Growth Risks Overshadow Inflation Relief

Industrial Output and Manufacturing Show Signs of Deceleration

Tariffs and Trade Uncertainty Cloud Export Outlook

Currency Weakness Adds Another Layer of Economic Risk

Rate Cut Aims to Cushion Growth as Trade and Industrial Strains Mount

Source: CNBC