EU Chooses Diplomacy Over Tariffs in US Greenland Dispute

The Indonesian Rupiah is moving dangerously close to a record low against the US dollar, with analysts forecasting further weakness as concerns over the nation's fiscal health intensify.

Major financial institutions now predict a significant slide for the currency. MUFG Bank Ltd. projects the Rupiah could weaken to 17,000 per dollar within the first quarter, while analysts at Barclays Plc see a potential drop to 17,300 this year. The currency has already fallen for two consecutive weeks and is just 0.4% away from its all-time low set in April.

Fiscal Deficit Fears Drive Investor Concern

Investor anxiety has flared up after a January 8th announcement revealed that Indonesia's budget shortfall for last year nearly breached the legal limit. This news, coupled with weak revenue collection, has renewed pressure on the Rupiah.

"Investors are still pretty much concerned about the fiscal outlook for this year," explained Lloyd Chan, a currency strategist at MUFG. He noted that while Bank Indonesia is stepping in, "there are quite a lot of constraints on the policy side."

This month alone, the Rupiah has declined more than 1%, making it the worst-performing currency in Asia after the South Korean won.

Bank Indonesia's Intervention Efforts Face Headwinds

Bank Indonesia (BI) has been actively working to stabilize the Rupiah, most recently intervening in currency markets on Wednesday. However, analysts suggest the central bank's efforts may be constrained by a likely tolerance for a modest depreciation, potentially limiting the impact of its actions.

To anchor the currency, BI is expected to hold its policy rate steady at its upcoming meeting on Wednesday. The central bank has also deployed several other tools, including:

• Adjusting the issuance of its bills

• Intervening directly in foreign-exchange markets

• Buying government bonds in the secondary market

Medium-Term Policy Risks Weigh on Currency

Looking ahead, the fiscal picture remains a primary concern. Analysts worry that this year's deficit could also widen beyond the 3% legal limit as the government aims to increase spending despite sluggish tax revenue.

A government plan to tighten control over exporters' foreign-exchange earnings could provide a buffer for the Rupiah, according to Shier Lee Lim, a strategist at Convera Singapore.

Still, the new administration's policy direction is adding to the uncertainty. President Prabowo Subianto's pro-growth agenda may lead Bank Indonesia to lower interest rates later this year, which would likely add further downward pressure on the currency.

In a recent note, Barclays analysts including Themistoklis Fiotakis highlighted these risks. "We see greater medium-term risks that the government will attempt to embark on relatively unorthodox policies which could fuel more bearish rupiah sentiment," they wrote, referencing the 3% fiscal deficit limit.

A leading think tank has issued a stark warning to the British government: abandon its pattern of policy indecision and embrace bold reforms, or risk squandering early signs of an economic recovery.

In a new report, the Resolution Foundation argues that to build on recent momentum, the government must stop its "flip-flopping" and take decisive action on trade, housing construction, and employment. The call comes 18 months into Prime Minister Keir Starmer's term, a period the think tank characterizes as being defined by U-turns and timidity.

A Pattern of Inconsistent Policymaking

According to the Resolution Foundation, the government's record has so far failed to match its economic promises. Despite pledges from Prime Minister Starmer and finance minister Rachel Reeves to accelerate the economy, there has been no significant change in its trajectory.

The report notes that planned reforms in critical areas like welfare and taxation have either been abandoned or significantly weakened. This inconsistency, it argues, is undermining the potential for real growth.

"With signs that productivity may be turning a corner, the government must capitalise by ramping up its plans," said Greg Thwaites, research director at the Resolution Foundation.

The £2,000 Path to Economic Revival

The think tank outlines a clear path forward with significant potential benefits for households. It calculates that a combination of key reforms could boost annual household incomes by £2,000 ($2,680). These reforms include:

• Housing: Changing planning rules to help cities meet housing targets.

• Trade: Pursuing deeper regulatory alignment with the European Union.

• Employment: Implementing policies to get more young and older people into the workforce.

Such growth would also yield major fiscal benefits, generating enough tax revenue to fund a 25% increase in spending for the public health service.

Decades of Stagnation and the Brexit Burden

The call for action comes against a bleak backdrop. The UK economy has largely stagnated in the nearly two decades since the global financial crisis. The report highlights that Britain's GDP per person has fallen further behind other major European nations since the pandemic.

This long-term trend was worsened by the combined shocks of COVID-19, high energy prices, and the economic impact of Brexit, which together caused a drop in productivity growth.

Furthermore, the Resolution Foundation presents growing evidence that the economic damage from Brexit may already be close to double the 4% impact assumed by Britain's official budget forecasters.

A Glimmer of Hope in Productivity Data

Despite the challenges, the report identifies a crucial opportunity. It points to a significant 3.1% leap in productivity in the year ending in the third quarter of 2025. This figure, which adjusts for previous under-recording of employment in official data, represents the "nascent signs of improvement" that the government is being urged to seize upon.

As Japan gears up for an anticipated snap general election, a potential cut to the consumption tax is rapidly becoming a central issue, with major political parties signaling their support for the measure to ease the burden of rising living costs on households.

Currently, Japan's tax system imposes a 10% rate on most goods and services, with a reduced rate of 8% applied to food. This tax is a crucial revenue stream for funding the country's growing social welfare expenses, driven by a rapidly ageing population.

Political Momentum Builds for Tax Relief

Both the ruling coalition and the main opposition party are now publicly advocating for a temporary tax reduction, suggesting a rare point of political consensus.

Shunichi Suzuki, a key executive in the ruling Liberal Democratic Party (LDP), confirmed the party's commitment to an earlier agreement with its coalition partner, Ishin. "It's our basic stance to sincerely achieve what's written in the agreement," Suzuki stated on a television program, referring to the plan to scrap the 8% levy on food sales for two years.

This move aligns with reports from the Mainichi newspaper that Prime Minister Sanae Takaichi may pledge to temporarily eliminate the 8% food tax as a core promise when she calls for a general election next month.

The opposition is also on board. Jun Azumi, secretary-general of the main opposition Constitutional Democratic Party of Japan (CDP), announced on the same program that his party would also campaign for a temporary tax rate cut. The CDP recently agreed to form a new political entity with Komeito, solidifying this position.

Takaichi's Election Timing and Fiscal Risks

Prime Minister Takaichi is expected to announce her intention to dissolve parliament and call a snap election for February, leveraging her administration's strong approval ratings.

However, the proposed tax cut carries significant financial implications. According to government data, eliminating the 8% food sales levy would reduce government revenue by an estimated 5 trillion yen ($31.71 billion) annually.

This revenue loss would place considerable strain on Japan's already stretched national finances. Analysts are concerned that such an expansionary fiscal policy could heighten the risk of a bond sell-off as investors scrutinize the government's fiscal discipline.

($1 = 157.6900 yen)

Precious metals surged to record highs after U.S. President Donald Trump announced plans to impose tariffs on eight European nations, escalating tensions over his administration's proposal to acquire Greenland. The move has ignited fears of a major trade war, sending investors flocking to safe-haven assets like gold and silver.

Trump's Tariff Threat Sparks Market Turmoil

President Trump declared a new 10% tariff on goods from several countries, including France, Germany, and the United Kingdom. The tariffs are scheduled to take effect on February 1 and are set to increase to 25% in June.

This unexpected announcement has fueled concerns of swift retaliation from Europe, raising the prospect of a damaging trade conflict that could disrupt global markets and drive further demand for precious metals.

Europe Prepares a Counter-Offensive

In response to the U.S. threat, European leaders are preparing to hold an emergency meeting to coordinate their strategy. Officials familiar with the discussions are exploring several countermeasures, including imposing retaliatory levies on €93 billion ($108 billion) worth of American goods.

French President Emmanuel Macron is also reportedly considering activating the EU's anti-coercion instrument, the bloc's most powerful tool for trade retaliation, signaling a serious potential for escalation.

Broader Trends Fueling Precious Metals Rally

The recent tariff threat adds to a series of geopolitical and economic drivers that have propelled precious metals higher this year, extending a dramatic rally that began in 2025. The market has been reacting to aggressive U.S. foreign policy, including the seizure of Venezuela's leader and repeated threats to take control of Greenland.

Simultaneously, the Trump administration has renewed its criticism of the Federal Reserve, raising concerns about the central bank's independence. This has fueled the "debasement trade," where investors move away from currencies and government bonds, fearing that rising debt levels will erode their value.

Market Snapshot: Gold and Silver Hit New Peaks

The market reaction to the tariff news was immediate and sharp:

• Spot gold climbed 1.7% to $4,676.22 an ounce as of 7:35 a.m. in Singapore, after reaching an earlier peak of $4,690.59.

• Silver surged 3.9% to $93.6305 an ounce, hitting a high of $94.1213.

• Platinum and palladium also posted gains.

• The Bloomberg Dollar Spot Index edged down 0.1%, reflecting currency market jitters.

High-level talks between Ukraine and the United States aimed at resolving the nearly four-year-long war with Russia are set to continue at the World Economic Forum in Davos, Switzerland, this week.

Ukraine's top negotiator, Rustem Umerov, confirmed the plan on Sunday following two days of discussions in Florida.

Rustem Umerov, Ukraine's lead negotiator, speaks on the country's position in ongoing diplomatic efforts.

Florida Talks Focus on Security and Recovery

The recent meeting in Florida involved a U.S. team that included envoy Steve Witkoff and Jared Kushner, son-in-law of President Donald Trump. According to Umerov, the discussions centered on two primary topics: long-term security guarantees for Ukraine and a comprehensive post-war recovery plan.

While Umerov described the talks as an in-depth discussion of "practical mechanisms," he gave no indication that any firm agreements were reached.

The Ukrainian delegation, which included Kyrylo Budanov, head of President Volodymyr Zelenskiy’s office, and Davyd Arakhamia, head of Zelenskiy's parliamentary faction, also used the meeting to report on recent Russian strikes that severely damaged the nation's energy infrastructure.

Diplomatic Efforts Move to Davos

"We agreed to continue work at the team level during the next phase of consultations in Davos," Umerov stated in a Telegram post.

A key objective for Kyiv is to gain clarity from Washington regarding Russia's position on the U.S.-backed diplomatic initiatives. Washington has been encouraging Ukraine to agree to a peace framework that could then be presented to Moscow. Meanwhile, Ukraine and its European allies are focused on establishing safeguards against future Russian aggression.

Zelenskiy: Russian Strikes Undermine Diplomacy

President Zelenskiy argued that Russia's recent military actions demonstrate a lack of genuine interest in a diplomatic solution. "If the Russians were seriously interested in ending the war, they would have focused on diplomacy," he said in his nightly video address.

Zelenskiy highlighted the widespread damage from the strikes, which left hundreds of apartment buildings without heating or electricity, as evidence of Moscow's intentions.

Infrastructure Under Attack Amid Freezing Temperatures

The humanitarian impact of the attacks is severe, with nighttime temperatures dropping to minus 16 degrees Celsius (3 degrees Fahrenheit). According to Zelenskiy, nearly 58,000 repair personnel are working to restore the nation's heating networks.

Deputy Prime Minister Oleksiy Kuleba reported that 30 apartment buildings in the capital, Kyiv, remained without heat following the recent attacks.

Adding to the concerns, Ukrainian intelligence suggests Russia is actively conducting reconnaissance for potential new strikes. Foreign Minister Andrii Sybiha warned on Saturday that there is evidence Russia may be considering attacks on power substations that supply the country's nuclear power plants. Russian officials did not immediately respond to requests for comment on these claims.

China's economy likely saw its growth slow to a three-year low in the final quarter of 2025 as domestic demand softened, creating a challenging outlook despite full-year performance meeting official targets. While the economy demonstrated notable resilience throughout the year, underlying structural problems and persistent trade tensions pose significant risks ahead.

A Reuters poll forecasts that gross domestic product (GDP) expanded by 4.4% year-on-year in the fourth quarter, a deceleration from the 4.8% recorded in the third quarter. If confirmed, this would mark the weakest pace of growth since the fourth quarter of 2022.

Despite the quarterly slowdown, the full-year economic expansion for 2025 is expected to reach 4.9%. This figure aligns with Beijing's official target of "around 5%" and is only slightly below the 5.0% growth seen in 2024. The data for Q4 and the full year is scheduled for release on Monday.

Record Exports Prop Up a Fragile Economy

A key driver of China's 2025 performance was its powerful manufacturing sector, which fueled a record trade surplus of nearly $1.2 trillion. Exporters successfully diversified away from the United States, offsetting tariff pressures and helping the economy withstand headwinds better than anticipated. This export boom allowed policymakers to maintain a relatively modest level of stimulus.

However, this heavy reliance on external demand highlights critical vulnerabilities. The strength in exports stands in stark contrast to sluggish activity at home, where the economy is grappling with a prolonged property slump, weak domestic spending, and persistent deflationary pressures.

On a quarter-on-quarter basis, the economy is projected to have grown 1.0% in the fourth quarter, a slight easing from the 1.1% pace seen between July and September.

Cautious Stimulus and a Gloomy 2026 Outlook

The economic picture for 2026 appears clouded. Forecasters see China's growth slowing further to 4.5% as it confronts rising global trade protectionism and the unpredictability of U.S. economic policy under President Donald Trump, who has threatened a 25% tariff on countries trading with Iran.

This downbeat forecast increases the pressure on policymakers to deliver more stimulus. In a move to boost demand, China's central bank announced sector-specific interest rate cuts on Thursday and signaled that further reductions in bank reserve requirements or broader rate cuts could follow.

However, some analysts remain skeptical about the immediate impact of these measures. "Growth is likely to stay weak in Q1 2026, as the policy package offers limited economic support," noted analysts at ANZ.

The Core Challenge: Shifting to Consumption-Led Growth

Deeper economic imbalances continue to impede long-term development. ANZ analysts estimate that China's nominal GDP grew by about 4.0% in 2025, the slowest rate since 1976, excluding the pandemic year of 2020. Furthermore, the GDP deflator, a broad measure of prices, has remained negative since 2023, underscoring the severe mismatch between excess supply and weak demand.

"China is facing a macroeconomic problem currently: excess supply. Overall domestic demand lags supply," said Louis Kuijs, chief Asia economist at S&P Global Ratings. "That weighs on growth and is leading to downward pressures on prices and profits. It also causes friction internationally as many companies are resorting to exports to escape 'involution' conditions at home."

At a key economic meeting in December, Chinese leaders pledged to maintain a "proactive" fiscal policy to support growth. They also vowed to "significantly" increase the share of household consumption in the economy over the next five years. To achieve this, several obstacles must be overcome:

• Slowing Income Growth: Household incomes need a substantial boost.

• Weak Social Safety Net: A stronger welfare system is required to reduce high precautionary savings.

• Falling Asset Prices: The decline in property values has eroded household wealth, discouraging spending.

The struggles of ordinary citizens highlight these policy challenges. Fang Ying, a 54-year-old delivery worker in Beijing, said his monthly income of 8,000 yuan barely covers his family's expenses. A failed restaurant business also cost him around 100,000 yuan. "It's not easy… I cannot compete with young people," Fang said. "There are many opportunities in Beijing, but not for people like me."

For years, institutions like the World Bank and the IMF have urged China to rebalance its economy toward consumption-led growth and rely less on investment and exports. While Beijing has taken steps to address excess industrial capacity, economists believe more fundamental reforms are needed.

December Data to Reveal Widening Economic Divide

Separate data for December, set to be released alongside the GDP figures, is expected to reinforce the narrative of a two-speed economy.

• Retail sales, a key indicator of consumption, are forecast to grow just 1.2% year-on-year, down from 1.3% in November and the weakest reading since December 2022.

• Factory output, in contrast, is expected to have grown by 5.0%, an acceleration from November's 4.8% rise.

This divergence clearly illustrates the central challenge facing China: an industrial engine that continues to fire while the domestic consumer remains on the sidelines.