China has just raised its debt ceiling

Economic

Summary:

Parliamentary sessions reveal everything is subordinate to growth.

China’s National People’s Congress and the Chinese People’s Political Consultative Conference met in early March to lay down the country’s main economic targets for 2025. As expected, the main target is once again real gross domestic product growth at around 5% and consumer price index inflation of around 2%. This real growth will have to be achieved by an increase in the deficit to GDP ratio of 4%, up from the previous 3%. Special local government bond quotas will be allowed to increase by 4.4%, compared with 3.9% previously.

These debt indicators are comparable to the debt ceiling in the US and the Maastricht criteria in the euro area. China has always paid attention to limiting the general fiscal deficit to 3%. The local government financing requirement has always remained below the radar as local governments were not allowed to borrow. However, as the main source of local government revenues (some 80%), the allocation of land use has dried up since the onset of the real estate crisis and borrowing though local government financing vehicles has skyrocketed.

The Chinese government has addressed this problem by allowing sub-national governments to issue bonds within the local government bond quotas to swap their hidden LGFVs for official bond issues and to refrain from using this shadow financing channel to cover their current financing needs. The LGFVs were mainly held by banks and insurances. However, direct bank lending has also replaced the issue of LGFVs.

According to the most recent International Monetary Fund Article IV Consultations in mid-2024, China’s general government borrowing rose rapidly to an estimated 60.5% of GDP in 2024 from 38.5% in 2019. Augmented debt, which includes LGFVs, has increased to 124% of GDP from 86.3%. The share of local government debt rose to more than 60% of GDP from close to 50%. The overall non-financial debt increased to 312% of GDP in 2024 from 245%, putting China among the most indebted countries.

On the reverse side of the coin, the increase in M2 money supply (annex 4 of the IMF report) is running at twice the growth in real GDP. At the same time the CPI is running close to deflation (negative in February 2025), a conundrum in itself.

Can China reach its growth target?

The recent parliamentary decisions tell us that everything is subordinate to the real GDP growth target of around 5%. However, this growth has to be supported by an accommodating monetary policy and by a higher debt to GDP ratio of 4% as adopted by the NPC.

The People’s Bank of China has been pursuing this accommodative monetary policy already over the past two years to boost sagging economic growth. The bank purchased a record supply of newly issued government bonds last year, without calling it quantitative easing. However, this was suspended at the beginning of 2025 as yields fell to record lows and the renminbi depreciated. Regional banks and institutional investors continued buying these additional bonds issued. In early 2025, the PBoC also supplied record liquidity in the money market to support bank lending, which is supposed to pick up.

The open question is whether all these measures will stimulate real economic activities such as borrowing by the private sector to boost private consumption and investment. In view of the uncertain export prospects and lack of confidence in the domestic market, the growth objective might be even more elusive than before.

Source:Herbert Poenisch

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Jason

Economic

The US trade measures – import tariffs, but also other types of export and import restrictions – will have far-reaching and long-term consequences for the US and the global economy. I believe the effects will be quicker, more severe and longer lasting than thought. The international trade system built after the second world war will come under grave pressure, with sustained consequences for the world economy.

Owing to the unusual degree of uncertainty, the International Monetary Fund provided its estimates in its 22 April World Economic Outlook in the form of a reference forecast with a range of possible developments. In this ‘reference’ scenario, US gross domestic product growth for 2025 (relative to the January forecast) has been revised downwards to 1.8% from 2.7%. For the euro area and China, it has been revised to 0.6% and 4.0%, respectively, down from 0.8% and 4.6%.

For several reasons – recent and long-term historical experience, the relatively long 90-day ‘relief period’, erratic US negotiating tactics and sharply increasing geopolitical risks – I believe the IMF is too optimistic.

Looking to history for comparisons

Trump’s chaotic geopolitical approach represents the most worrying aspect of current circumstances. Unfortunately, subtlety is not part of the US administration’s DNA. It is bringing in trade restrictions at the same time as numerous measures aimed at domestic individuals and institutions, covering areas as varied as diversity, equality and inclusion, immigration, financial matters and the judiciary.

All this is being done with little or no coordination, for reasons often based on either prejudice or vindictiveness, and in a manner that frequently borders on the unconstitutional. America’s geopolitical tactics show the same erratic and ill-considered characteristics, with associated dangers for economic and political stability.

In the WEO, the IMF emphasises the downside risks, including those stemming from financial instability, exchange rate movements and fiscal developments. It does not foresee recession, either in the US or globally. Understandably the Fund does not wish to be too pessimistic. It aims to avoid either self-fulfilling expectations or provoking Trump into disastrous madcap actions such seeking to leave the IMF.

But we need to look at comparators. The most relevant historical example is America’s Smoot Hawley Tariff Act of 1930. Like Trump’s protectionist measures, it was introduced against the advice of prominent economists and only after much political wrangling. Because this Tariff Act more or less coincided with the outbreak of the Great Depression, it is difficult to isolate its effects from the other influences. However, it is clear that this act deepened and prolonged the downturn that had already begun in 1929.

The 1930 experience shows the difficulty of dismantling protectionist measures once they have been introduced. Only in 1934, with the Reciprocal Trade Agreements Act, could the US president negotiate bilateral tariff reductions. Import tariffs were gradually reduced until the early years of the war. After the second world war, US trade tariffs were reduced gradually and by the turn of the century the effective tariff on all US imports had reached an extremely low level. In current circumstances, substantially reversing import measures is even more difficult because revenues from import tariffs are desperately needed to finance promised US tax cuts.

Learning from the Brexit experience

We should examine, too, the effects of Britain leaving the European Union. Supply chains largely cross national borders and capital flows can move freely around the world. This has greatly increased vulnerability to trade barriers and can widen and speed up negative effects. The UK-EU Trade and Co-operation Agreement (effective January 2021) led to average import tariffs (2.8% for the UK and 1.5% for the EU) that were based on ‘rules of origin’ and compliance with the most-favoured-nation clause and are incomparably lower than the present effective rate on all US imports of around 25%.

Yet despite the relatively limited increase in import duties, Brexit has been extremely damaging. The UK Office for Budget Responsibility estimates that, longer term, withdrawal will reduce the size of the economy by 4%.

The non-tariff consequences of Trump’s measures are likely to be much greater. The number of countries and supply chains affected is much larger. Many more conflict situations will arise. The MFN approach has de facto been abandoned. The US and subsequently China have decided additional targeted, non-tariff measures such as restrictions on goods such as certain chips, Boeing aircraft and rare earths that could further fuel the trade war.

Uncertainty fuelled by negotiations

Regarding the 90-day negotiation period, Trump’s wayward style in dealing with Mexico, Canada, China as well as the EU adds to anxiety about what could go wrong. As an example of this behaviour, Trump announced he would double the universal base rate of 10% and add specific rates with a focus on China. When he put this on hold – except for China – financial markets and governments breathed a sigh of relief, but this appears premature.

The tariff policy has clearly got completely out of hand with absurdly high tariffs, especially for China, which Scott Bessent, US Treasury secretary, has termed unsustainable. Trump has expressed a willingness to negotiate, under pressure from financial markets and US corporations. However, the path to an acceptable outcome is paved with problems. The Chinese want an end to the tariff war, but their demands will be hard for Trump to swallow. His claims that negotiations with China have started appear to have no factual basis. It will not be easy to rein back, especially because Chinese confidence in American trustworthiness will have sunk to a very low level.

No one knows exactly what the US position will be in coming months. Uncertainty will prevail for a relatively long period, with a paralysing impact on investors and consumers. The negotiations will in any case be extremely complex. The US will attempt to incorporate more than just trade considerations. For example, America will try – and probably fail – to separate Asian countries from China.

The reciprocity approach is another complicating aspect. For the US, reciprocity includes not only tariffs but also value added tax and safety and health requirements, which the US believes distorts competitive relations. However, reciprocity is at odds with the MFN clause. Compliance with this clause is crucial. It seems almost impossible to reach an agreement with so many countries in such a short period, in a way that maintains equal trade opportunities.

A balanced outcome requires a multilateral framework and not bilateral negotiations in which a dominant country tries to impose its often misguided economic views on others through all kinds of threats.

With Brexit we have already seen, in a much more limited case, the high price of non-tariff consequences. Without MFN, customs authorities will have to check the goods codes of hundreds of imported products as well as the country of origin, which could lead to discussions about where ‘substantial transformation’ has taken place.Forthcoming difficulties include increasing bureaucracy, interpretation problems, delays in processing, political and legal conflicts and retaliation. Furthermore, the system will become much more susceptible to fraud because companies will seek export opportunities to the US via countries with low tariffs.

Three-stage Trump process: bravado, threat and confusion

We are now familiar with the three-stage Trump process. It starts with bravado (‘We will solve this problem overnight’), followed in many cases by threat and ends in confusion and derailment. We have seen this with Ukraine and Israel, areas of high geopolitical risk.

Both cases are striking. Trump recently stated that Putin had made a significant concession by renouncing the occupation of all of Ukraine. After America gave carte blanche to Israel gradually bombing the entire Gaza strip and its inhabitants, Trump proposed turning this territory, under American supervision, into a wonderful holiday resort and relocating the inhabitants to surrounding countries. This proposal defies all descriptions of empathy and international law.

The next risk areas are Iran and China. Both countries are willing to negotiate but demand mutual respect, dialogue and consultation on an equal footing. If the discussions with these two countries do not end well, serious consequences will probably ensue.

Resistance in the US to Trump’s policies is growing. States, universities and individuals are increasingly turning to the courts to influence or stop processes under way. I hope the judiciary will act vigorously and independently, but legal contests are time-consuming. The damage done in the meantime, not least in the trade arena, will be difficult to repair quickly.

In its 22 April report the IMF rightly emphasises that the path forward requires clarity, caution and co-operation. In the foreseeable future, these are not traits we can expect to see from the Trump administration. For all the talk at the IMF-World Bank meetings in Washington that Trump may be switching back to more sensible policies, there is a strong probability of pessimistic rather than optimistic outcomes.

Source:Nout Wellink

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Devin

Economic

Forex

Questions about whether President Donald Trump’s tariffs spell the end of dollar dominance and the safe-haven status of US Treasuries elicited tremendous hand-wringing by market participants and officials at the International Monetary Fund-World bank spring meetings. And rightly so.

But while critical and legitimate concerns have been raised about Trump’s chaotic actions and policies, and recent developments may indeed be setting in motion a gradual decline in dollar dominance, the hand-wringing is overdone.

Fundamental components of dollar dominance are under attack

Since Trump’s disastrous tariff rollout, financial markets have understandably been on edge. A risk-off environment generally is seen as benefitting the dollar and bond prices. But in the latest period, stocks and bond prices fell sharply. Moreover, while most analysts had expected the dollar to rise alongside the announcement of tariffs, in fact the dollar fell, reflecting concerns that tariff policy would cause a recession and a ‘sell America’ loss of confidence in the administration’s chaotic policy-making.

Market participants are fully justified in worrying that dollar dominance may wane, and sharply, given that the administration appears uncommitted to protecting the properties that give rise to that dominance. The dollar’s global role is predicated not only on the huge size of the US economy, but also broadly sound macroeconomic policies, the depth, liquidity and openness of US capital markets, good rule of law, sound institutions and America acting as a trustworthy ally and partner.

These are all under attack.

US fiscal debt and deficits are high and the unsustainable fiscal trajectory is on the wrong track. Yet Trump plans to cut taxes, which will worsen the outlook. Trump’s attacks on Federal Reserve Chair Jerome Powell, along with challenges to representatives at other agencies, raise questions about the independence of the Fed and strength of US institutions.

Stephen Miran’s misguided Mar-a-Lago Accord proposal raises questions about whether the administration might eventually use coercive capital markets measures to help finance the US government. Trump’s attacks on Europe, Canada and others, his volte face on supporting Ukraine and his casting doubt on US adherence to Nato commitments raised questions about whether the US can be a trusted partner and ally. Lurking in the background is America’s overuse of financial sanctions.

No real alternative to the dollar

It is little wonder that questions arose about whether these developments mark the beginning of the end of dollar dominance and the dollar’s safe-haven status.

But the stories about the death of dollar dominance are premature. It will continue for the foreseeable future given a lack of viable alternatives. The dollar’s role may ease as markets look for alternatives such as gold, boost allocations of other currencies at the expense of the dollar or pursue other asset classes such as private credit. But significant near-term declines are unlikely.

Asset managers adjust portfolio benchmarks slowly and gradually, though they are likely to modify dollar benchmarks. The euro may benefit, but its rise will most likely be limited given the lack of euro safe assets, as distinct from Bunds and French government bonds (OATs) for example, lack of economic dynamism and fragmented European capital markets. The renminbi will make little headway given China’s economic headwinds, capital controls, inconvertibility and questionable rule of law. There’s something to be said for the adage in foreign exchange markets about the dollar often being the ‘least ugly’ currency.

Gold is in vogue but there are limits to how much one can load up a portfolio. There are also limits to how much portfolios can be bulked up with Australian and Canadian dollars and Swiss francs.

‘Exorbitant privilege’

While global policy-makers have long decried the dollar’s purported ‘exorbitant privilege’, other countries have hardly done what it takes to get in on the action. And they protest too much – they benefit from having a medium of exchange that allows low transaction costs for global trade and finance, let alone a usually decent store of value.

The dollar has faced huge pressures in the past. It fell sharply in 1978 amid a loss of confidence in US economic policy-making. In 2008, the dollar fell towards $1.60 to the euro during the global financial crisis amid heavy agonising from European officialdom, while China worried about its stash of US paper. Yet the dollar’s dominance increased in subsequent years, particularly in the last decade when aggregate reserves levelled off but the private sector made heavy use of the currency in international transactions.

The dollar’s global role will most likely ease in the coming years as portfolios are rebalanced somewhat away from the currency in reaction to Trump’s policies and the associated diminished confidence in the US. That will hurt Americans and the international community. But ‘sell America’ concerns and the news of the dollar’s demise are premature.

Source:Mark Sobel

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Kevin Du

Central Bank

What are the Expected Economic Impacts?

The signing of an initial trade agreement next week, as disclosed by Bessent, is expected to have far-reaching economic implications. Meanwhile, optimism surrounds the ongoing trade discussions with China, which show promise. In parallel, the Federal Reserve is anticipated to announce its interest rate decision in the U.S., with remarks from Fed Chair Powell guiding economic forecasts throughout the year.

Should the current economic indicators, hinting at recessionary pressure, persist, the favorable PCE data might prompt Powell to consider accelerating interest rate reductions by June. Despite the recent rapid adjustments in interest rates during election season, the Federal Reserve is likely to maintain current levels at the upcoming May meeting, though this restraint may be difficult to sustain moving forward.

How Will President Trump’s Policies Influence the Fed?

President Trump’s strategy seeks to curb inflation by tackling oil prices while generating national income through revised trade agreements. In response to Trump’s approach, it is expected the Federal Reserve will delay messaging about potential interest rate cuts scheduled for announcement on Wednesday.

Market outlooks from three analysts have been revealed, offering varied forecasts. Altcoin Sherpa humorously referred to ETH as a slow-declining asset, speculating that historic lows in the ETHBTC pair could imply an impending bullish reversal. Meanwhile, DaanCrypto highlighted a potential upward market trend following tight breakouts, showing confidence in maintaining trades with the current trends.

In his latest forecast, Roman Trading depicted Bitcoin‘s return to prior sell points, expressing no concern about missed peaks. Highlighting the substantial decline in altcoin positions, he hints at potential opportunities to reinvest should altcoins start rising.

– A new tariff agreement is anticipated to be signed soon.– Discussions with China hint at positive progress.– The EU is ready to spend $100 billion to boost trade.– Federal Reserve’s stance on interest rates is pivotal.

Future negotiations and economic strategies could potentially foster robust financial stability and growth. The developments next week are critical and may steer market trajectories, influencing both investors and international relations profoundly. The unfolding scenario suggests important repercussions for future economic policies and trade dynamics worldwide.

Source: CryptoSlate

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Thomas

Economic

While the immediate effects of sweeping US tariffs will fall hardest on major exporters such as China and the European Union, the Middle East and North Africa region will not be untouched. The impacts may be delayed and mostly indirect, but they will test the region’s resilience in the year ahead.

At first glance, most MENA economies appear insulated. The US is not a major trading partner for much of the region. On average, only around 5% of MENA exports go to the US, and much of this consists of oil and gas, which are typically exempt from tariff measures. In the Gulf, direct exposure is even lower. The United Arab Emirates and Saudi Arabia, for instance, send just 2% to 4% of their exports to the US, most of it in hydrocarbons that avoid tariff coverage. Based on these figures, the region seems unlikely to face immediate disruption.

But that view is deceptive. Trade policies of this scale rarely stay contained. Protectionism disrupts global supply chains, shifts investment flows and generates market uncertainty that ripples well beyond the countries directly involved. MENA economies, especially those that rely heavily on hydrocarbons and global capital, are acutely sensitive to these second-order effects.

Energy prices and trade diversion

Oil markets are especially vulnerable. A sustained trade dispute between major economies could weigh on global growth expectations, pushing energy prices lower. For Gulf states, this creates immediate fiscal strain. Saudi Arabia, which is at the centre of the region’s economic transformation efforts, relies heavily on oil export revenue to fund capital projects and maintain macroeconomic stability. A drop in prices complicates budget execution, slows project delivery and increases pressure on public finances. The impact on smaller, more vulnerable economies like Bahrain or Oman would be even more pronounced.

There is also the risk of trade diversion. When large markets such as the US raise tariffs, exporters seek alternative destinations for their goods. That includes regions with open trade regimes and few restrictions – precisely the profile of the Gulf Cooperation Council. Chinese manufacturers facing reduced access to the US may begin offloading excess inventory to Gulf markets, even if it means accepting slimmer margins or losses.

This practice, often described as dumping, is not new. The region experienced it in 2017 when Chinese steel, blocked from the US and EU, found its way into Gulf markets and undercut local producers. There is a risk of history repeating itself, this time across a broader range of sectors.

Some countries will be hit harder than others

Some countries in the region face more concentrated exposure. Jordan sends over a quarter of its exports to the US, with apparel and garments making up the majority. Tariffs could undercut the competitive edge Jordanian producers hold, reducing orders and putting employment in export-dependent sectors at risk.

On the other end of the spectrum, countries like Türkiye may find narrow advantages. US tariffs on EU and Chinese goods could make Turkish products more competitive in the American market. Combined with diversified exports and the possibility of strengthened trade ties with Europe, Türkiye could manage to position itself more favourably, at least in the near term.

Morocco may also see some balance sheet relief from lower oil prices, given its status as a net energy importer. But this would be offset if trade tensions cause broader pressure on global demand for commodities like phosphates and fertilisers, key export products for the country.

Opportunities from the disruption

Yet this period of disruption could also bring opportunity. The GCC’s geography has long made it a key node in global trade, dating back to its role on the ancient Silk Road, where goods, culture and capital flowed between Asia, Africa and Europe. That legacy still shapes its positioning today. As trade routes begin to shift again, the region’s strategic location is once more a strength.

There is growing potential to deepen intra-regional trade, enhance links with emerging markets in sub-Saharan Africa and South Asia and expand trade relations with India. These shifts not only open new markets for Gulf exporters but also offer avenues for greater resilience.

Additionally, trade is no longer just about goods. The region is increasingly investing in digital infrastructure, logistics and alternative payment systems that can reduce reliance on traditional financial channels. These developments could help mitigate external shocks and allow for more autonomous economic positioning.

Taken together, these dynamics suggest a region that will not feel the initial shock of US tariffs. MENA’s exposure lies not in direct trade volumes, but in the fragility of the global environment that sustains its economies. The GCC sits in a shaky position. It has so far maintained a careful balance, growing ties with both Washington and Beijing while steering clear of hard alignment. But as the global trading system becomes more fractured, that neutrality may come under increasing pressure.

The question now is whether that stance can hold in a world where trade is increasingly weaponised. Still, with the right positioning, the region is not just vulnerable. It is also well placed to adapt. If policy-makers can seize new openings while preparing for external shocks, the Middle East may emerge not only resilient, but more globally integrated than before.

Source:Yara Aziz

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Damon

Economic

Australia’s Q1 CPI report was this week’s main event domestically, The key outcomes were slightly above consensus, the headline measure rising 2.4%yr (0.9%qtr) and the underlying trimmed mean measure 2.9%yr (0.7%qtr). Arguably there is less need to intensely scrutinise the detail now annual inflation is back in the RBA’s 2-3%yr target range, but it is worth highlighting the deceleration in market services inflation to 3.3%yr after being stuck at 4.2%yr throughout 2024 as it has been regularly cited by the RBA when discussing the upside risks to inflation. The current pulse is constructive too. On a six-month annualised basis, both headline and trimmed mean inflation are now in the bottom half of the RBA’s 2-3% target band, all but locking in a cash rate cut at the May policy meeting in roughly two weeks’ time.

As discussed by Chief Economist Luci Ellis in this week’s essay, many other indicators also warrant moving towards a neutral monetary policy stance. This includes our Q1 Westpac-DataX Consumer Panel update which revealed that Australians have now saved 80¢ from every extra dollar of income received from the tax cuts. With households opting to rebuild savings buffers – following a lengthy period of declining real per capita disposable income – there is limited scope for a ‘strong’ rebound in real consumer spending and instead larger downside risks to growth.

On the broader growth outlook, the latest update on trade reported a significant rebound in the goods surplus, up to $6.9bn in March. The data has been incredibly volatile over the past few months; but, overall, Australian goods exporters look to have benefitted from tariff front-running, setting up a positive contribution to GDP from net exports in Q1. Later this morning, we will also receive an update on retail sales volumes, another key guide for Q1 GDP, due in early June.

Offshore, US data made clear the downside risks from the Trump Administration’s trade policy.

US GDP disappointed expectations at the margin, declining 0.3% on an annualised basis. A key contributor to this deterioration was household consumption which slowed from a 4.0% annualised pace in Q4 to 1.8% in Q1 2025. This is despite continued robust gains in employment and wage growth. While the latest read for ADP employment points to downside risks for employment, the monthly gain decelerating from 147k to 62k in April, wage growth as measured by the employment cost index remained healthy in Q1, rising another 0.9%.

Coming back to the Q1 GDP detail, the other results were diverse and arguably susceptible to revision. In Q1, government spending declined and dwelling investment stalled, but business investment surged. The pull-forward of imports to get ahead of tariffs (from not only Australia but the world) was clear in the trade detail too, imports growing at a 41% annualised pace against exports’ 1.8%. Another way to highlight the significance of the trade effect is to note that, while GDP growth declined from 2.4% annualised to -0.3% in Q1, annualised growth in domestic demand (which omits the impetus from the trade position) was only 0.5ppts lower in Q1 at 2.4% annualised.

Assessed in isolation, this outcome would imply there is no reason to be concerned over domestic demand in the US hence. But this activity and price data pre-dates April’s tariff escalation. Consumer and business sentiment has since jolted lower.

On the final release for April, University of Michigan consumer sentiment is almost 30% lower than in December and most certainly due to concern over tariffs – the 1-year view for inflation now 6.5%, more than three times the FOMC’s 2.0%yr target. The Conference Board’s measure was similarly downbeat, particularly expectations which declined 12.5pts to only 54.4, the lowest level since October 2011. Respondents to this survey also showed acute concern over inflation, their 1-year inflation expectation now 7.0%yr, but also felt tariffs were likely to impact the labour market, the assessment of ‘jobs plentiful’ minus ‘jobs hard to get’ down to the second lowest level in this cycle. To date, labour market data has been consistent with a deceleration in employment growth, not outright decline; but, as made clear by the ADP reading above, risks are heavily skewed.

This risk is also evinced by the business surveys. Most notably, the ISM manufacturing employment index is currently almost 10pts below its 20-year average. The various Federal Reserve district business surveys also point to apprehension and concern over the outlook amongst a wide variety of US businesses. Tonight we will receive the April employment report, giving a full view of US labour market dynamics as President Trump’s tariffs were announced and implemented.

While of limited interest to markets this week, developments outside the US are worthy of close assessment. In contrast to the deterioration in US economic activity, Euro Area GDP surprised to the upside, rising 0.4% in Q1 to remain 1.2% higher over the year – a trend pace. Detail is still forthcoming, but European Commission economic sentiment and recent labour market data point to resilience across the region. Ahead, Europe is not only likely to receive financial inflows from those looking to diversify away from the US, but also additional tourism-related activity.

Albeit to a lesser extent, and likely with a lag, the same can be said of Asia. While news reports assessed the headline readings for China’s official PMI’s this week against the supposed 50 expansion/ contraction divide, manufacturing at 49.0 and services circa 50.4, it is best to instead assess current outcomes against the historic relationship between the PMIs and GDP.

Over the past decade or so, outcomes for the PMIs around the current level have occurred coincident to GDP growth at or above the 2025 target of 5.0%. This is before we take into consideration the stimulus being readied by authorities to support the consumer and housing, or the highly-accommodative stance of monetary policy. Asia more broadly will receive benefit from robust growth in China and India, but also has a strong pipeline of development opportunities before it.

Obviously the more developed an economy, the less power this pipeline has. However, even for a highly developed economy like Japan, the outlook remains constructive.

This week the Bank of Japan met and, unsurprisingly given current US policy uncertainty, left policy unchanged. Yet they still expect any shock to growth to prove modest and temporary, with activity growth forecast to accelerate from a downwardly revised 0.5%yr in FY2025 (from 0.7% in FY2024 and compared to January’s 1.1%yr forecast for FY2025) to 1.0%yr in FY2027. Core inflation (ex fresh food and energy) meanwhile is expected to hold either side of the BoJ’s 2.0%yr target in FY2025 and FY2026 and achieve it come FY2027. As such, the BoJ’s focus remains slowly normalising policy, targeting a policy rate of 1.0%. One 25bp hike remains likely by end-2025, but the last not until 2026.

Source:Westpac Banking Corporation

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Damon

Economic

2025 is a critical moment for women in finance. OMFIF’s Gender Balance Index finds that modest gains in representation are threatened by growing backlash against diversity and inclusion initiatives.

Now in its 12th year, the GBI tracks the presence of women and men in senior positions across 335 institutions globally, including 185 central banks, 50 public pension funds, 50 sovereign funds and 50 commercial banks. For the first time in the index’s history, three institutions – Banco Central de Chile, Ontario Teachers’ Pension Plan and Norges Bank Investment Management – achieved perfect scores of 100, signifying complete gender balance according to OMFIF’s weighted methodology. However, these represent only 1% of the institutions tracked.

Sovereign funds demonstrated the largest year-on-year improvement and have doubled their average GBI score to 38, from 19 in 2021, driven primarily by progress in emerging markets. Kuwait Investment Authority, the Sovereign Fund of Egypt and Public Investment Corporation in South Africa ranked in the top 10 for the first time this year.

Meanwhile, pension funds maintain their leadership in gender balance with an average score of 50. However, they have shown no improvement since 2024, as the share of female chief executive officers fell to 24%, suggesting a possible plateau under current approaches. More broadly, the average score for all institutions in the index is 42 – less than halfway to parity.

Figure 1. Improvements in gender balance across institutions

Average GBI scores (100 = perfect gender balance)

Source: OMFIF GBI 2021-25

Note: The sample of pension and sovereign funds included in the index changed in 2022 to cover 50 of the largest institutions by assets under management.

Central banks and commercial banks also showed progress, with scores rising to 40 and 42 respectively. The number of female central bank governors reached a record high this year, following new appointments including Vathana Dalaloy at the Bank of the Lao PDR and Beth Hammack at the Federal Reserve Bank of Cleveland. Maysaa Sabrine, who was appointed as the governor of the Central Bank of Syria in December 2024, took the total number of female governors up to 30. However, she has since resigned as of March 2025.

Overall, the share of female leaders increased to 16%. This is higher than ever before, though a just few decimal points more than the share in 2024. Further down the pipeline, the picture shows subtle progress, with women at the deputy governor and C-suite level increasing to 28% in 2025 from 26% in 2024. Overall female representation in senior staff has edged up to 32% from 31%, raising a crucial question: have institutions reached a self-imposed diversity ceiling or is there still room for meaningful progress?

Progress in the pipeline was in part due to commercial banks rebounding after their backslide in 2024. The share of women in C-suite positions across all commercial banks rose to 19% after falling to 15% last year, as did the share of women in executive committees – rising to 29% from 25%. At the top level, the number of female CEOs increased to seven, with Bettina Orlopp becoming acting CEO of Commerzbank where she was previously chief financial officer.

The types of roles women hold also matter. Across commercial banks, pension funds and sovereign funds, women hold just 26% of revenue-generating positions, with a profit and loss accountability – the very roles from which future CEOs are typically selected. This disparity is particularly significant given that four out of five new female leaders were internal promotions, underscoring the importance of building diverse talent pipelines within institutions.

As 2025 unfolds, financial institutions face a defining choice: dial back diversity initiatives in response to political and economic headwinds or double down on gender balance efforts at this inflection point for women in finance. The decisions now are likely to shape the sector’s gender parity landscape for years to come.