Sweden Economy Shrinks In Surprise, Hit By Weaker Investment

Economic

Data Interpretation

Summary:

Swedish output unexpectedly contracted at the beginning the year, breaking a two-quarter streak of expansion due mainly to subdued investments.

Gross domestic product fell by 0.2% in the three months through March from the previous quarter when output grew a revised 0.5%, according to seasonally adjusted data published by Statistics Sweden Friday. The figure was below the median estimate of analysts for a 0.1% gain and a flash indicator which signaled output was unchanged.

The first contraction since the fourth quarter of 2023 suggests that an economic recovery in Sweden is faltering despite a series of rate cuts by the Riksbank, just as the global economy is dented by intense uncertainty over the direction of US trade and security policy. While underlying price pressure has also remained stubbornly elevated in Sweden, the data may raise expectations for another reduction in borrowing costs next month.

“Economic activity was weak in Q1 and forward looking signals subdued growth Q2 as well,” said Anders Bergvall, senior economist with Svenska Handelsbanken AB, who also pointed out that household consumption was “significantly weaker” than the Riksbank’s forecast. “Hence, today's outcome supports our view that the Riksbank will cut rates in June.”

The statistics office said the decline was driven by investments, but “strong net exports offset this and helped keep GDP growth around the zero mark.”

Traders in overnight swaps still price in 12 basis point of cuts by the June meeting, the same as on Wednesday. The krona, which has been the best performer this year versus the dollar and the euro in the G-10 space of major currencies, briefly weakened after the release, trading little changed at 10.8656 versus the euro at 8:46 a.m. in Stockholm.

In neighboring Finland, GDP adjusted for seasonal swings stagnated in the first quarter from the prior period, when it grew a revised 0.2%. A flash estimate had indicated an expansion of 0.1%. Output from the forest industry grew, while other manufacturing contracted, and a downturn construction deepened further, the statistics office said.

Source: Bloomberg Europe

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Appeals Court Halts Trade Court Ruling on Trump’s Tariffs

On Thursday, a federal appeals court granted the Trump administration’s request to temporarily pause a ruling by the U.S. Court of International Trade, which had struck down most of President Donald Trump’s tariffs. The appeals court’s decision allows the tariffs to remain in effect for now, providing the administration with additional time to appeal the decision. The court noted that it would consider further motions related to the case while the legal process continues.

The administration had informed the U.S. Court of Appeals for the Federal Circuit that it would seek emergency relief from the U.S. Supreme Court if the trade court’s ruling was not promptly stayed. The lower court’s ruling had invalidated a significant portion of the tariffs that Trump had implemented as part of his broader strategy to reshape international trade.

Implications for Trade Agenda and Negotiations

The trade court’s ruling had the potential to undermine a central pillar of Trump’s economic strategy—the use of tariffs to alter global trade dynamics. The decision destabilized Trump’s approach, and he quickly condemned the ruling, arguing that it could undermine presidential power and harm the U.S. economy. Trump expressed concern that if allowed to stand, the ruling would dramatically weaken the executive branch’s authority on trade matters.

Trump trade advisor Peter Navarro remarked that even if the administration lost the case, they had other means to impose tariffs. Nonetheless, the ruling appeared to weaken the U.S. negotiating position in ongoing trade talks.

The case is expected to advance rapidly, with both sides bracing for a swift escalation. The appeals court has given the plaintiffs—who include state attorneys general and domestic businesses—one week to respond to the government’s request for a longer stay. The government has until June 9 to file its reply. Given the high stakes, both the Trump administration and the plaintiffs appear prepared for the case to move quickly through the legal system, with the possibility of it reaching the U.S. Supreme Court.

Response from Legal Experts and Plaintiffs

Jeffrey Schwab, a lawyer representing the business plaintiffs challenging the tariffs, described the appeals court’s decision as a procedural step. He expressed confidence that the Federal Circuit would ultimately deny the government’s motion for a longer stay, emphasizing the significant harm the tariffs are inflicting on U.S. businesses. Schwab and other critics of the tariffs argue that the trade measures are causing irreparable damage and are unsustainable in the long term.

The temporary reinstatement of Trump’s tariffs underscores the ongoing legal battle surrounding his administration's trade policies. While the appeals court’s decision provides temporary relief for the Trump administration, the case is expected to proceed rapidly, potentially culminating in a Supreme Court ruling that could have lasting implications for U.S. trade authority and international relations.

Source: CNBC

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India’s Economic Ascent to the Fourth-Largest Position

India is set to become the world’s fourth-largest economy in 2025, surpassing Japan, according to the latest IMF projections. With a GDP forecast to reach $4.187 trillion, India’s rise marks a significant milestone for the world’s most populous democracy. Despite its progress, India’s economy faces numerous challenges that could hinder its ability to sustain growth in the long run, requiring crucial reforms and strategic investments.

B.V.R. Subrahmanyam, CEO of India’s think tank Niti Aayog, recently proclaimed India’s impending leap into the top four economies, citing the IMF data that places India ahead of Japan. The country’s economic growth trajectory is a direct result of strong structural dynamics, including a large, educated, and growing workforce, which is driving technological and service sectors forward.

Growth Drivers and Future Prospects

India’s potential as an economic powerhouse is supported by its demographic advantages and expanding capabilities in technology and services. These strengths are coupled with “tactical tailwinds” such as lower oil prices and robust gold demand, which help mitigate India’s reliance on imports for energy and enhance household savings. Additionally, domestic consumption, which constitutes over 56% of India’s GDP, plays a crucial role in fueling growth. Rural areas, accounting for 40% of consumer goods sales, are expected to further contribute to consumption, particularly with improving agricultural yields and favorable weather conditions.

Malcolm Dorson, senior portfolio manager at Global X ETFs, describes India as a “fine-tuned compounding machine” with a clear path to becoming the fourth-largest global economy. This is underscored by positive domestic consumption trends, increasing foreign investments, and the integration of India’s equity markets into global exchanges, which could lead to higher valuations and deeper capital markets.

Challenges and Need for Reforms

Despite these favorable conditions, India faces significant hurdles in raising its standard of living and closing the gap with more developed economies, such as Japan. India’s per capita GDP stands at a mere $2,880, a stark contrast to Japan’s $33,960, according to IMF data. To bridge this gap, India must focus on substantial reforms, particularly in infrastructure development, education, workforce skills, and job creation.

Shumita Deveshwar, chief India economist at TS Lombard, stresses that the country must prioritize capital expenditure on transportation networks, skill development, and job creation to foster sustainable and inclusive growth. Furthermore, as India continues to expand, it must remain competitive in the global market by enhancing its workforce capabilities and focusing on key industries where it has a comparative advantage.

Strategic Policy Adjustments for Sustained Growth

Analysts, including Dhiraj Nim from ANZ Bank, view India’s rise to the fourth-largest economy as an inevitable “natural course of events,” but caution that prosperity must be distributed more evenly. There is a pressing need for India to open up more to foreign businesses, allowing them to capitalize on the country’s low-cost structures while ensuring that industries have the requisite skills and capacity to compete globally.

Additionally, reforms in labor, agriculture, and other sectors must be expedited. Past delays in policy implementation, especially in labor and farm reforms, have impeded productivity and hindered the overall growth of several sectors. To ensure that India maintains its momentum, policymakers must focus on effective execution to meet ambitious targets and capitalize on the country’s expanding economic influence.

Upcoming Developments

India is poised for further trade and economic developments, including negotiations for a trade deal with the U.S., expected to conclude in late June. With growing exports and rising investments, India’s economic profile will continue to strengthen, but sustained reform efforts are critical to achieving long-term prosperity.

India’s ascension to the world’s fourth-largest economy is a historic achievement fueled by its demographic advantages, robust domestic consumption, and emerging sectors. However, achieving sustained economic growth requires strategic reforms in infrastructure, education, and industrial sectors. The country’s leaders must act quickly and decisively to ensure that India’s economic potential is realized in a way that benefits all its citizens, enabling it to maintain its position as an economic leader on the global stage.

Source: CNBC

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Stalled U.S.-China Trade Negotiations Await Leadership Intervention

U.S.-China trade talks are "a bit stalled," according to Treasury Secretary Scott Bessent, who emphasized the need for direct engagement between Presidents Donald Trump and Xi Jinping to resolve the ongoing issues. Following a rapid escalation in trade tensions last month, the two countries reached a temporary agreement in Switzerland on May 12, where both sides agreed to pause recent tariff hikes for 90 days, with a review scheduled for mid-August. However, significant obstacles remain in the form of unresolved issues related to technology restrictions and rare earth exports.

Despite the diplomatic breakthrough in Switzerland, the U.S. has proceeded with implementing technology restrictions on China, exacerbating tensions, while China has not yet eased its restrictions on rare earths, which the U.S. had hoped would be addressed. These ongoing disputes highlight the complexity of the trade talks, with Bessent indicating that resolving the matter will likely require both leaders to become directly involved. He expressed confidence that with Trump’s leadership, China will come to the table to finalize the agreement, noting the positive relationship between the two leaders.

China’s Stance on Trade Restrictions and Rare Earths

Since the Geneva talks, China has maintained communication with the U.S., according to Chinese Ministry of Commerce spokesperson He Yongqian. However, China has continued to criticize the U.S. for its chip export controls, urging the U.S. to correct its actions and honor the consensus reached in Switzerland. He further reiterated China’s position on the export of rare earths, explaining that the restrictions on materials that have both military and civilian uses align with international practices and China’s commitment to global peace and regional stability.

The last direct communication between Presidents Trump and Xi occurred in January, just before Trump’s second term began. While Trump has expressed a desire for another conversation with Xi, analysts believe that China may only agree to such a call if they are assured that there will be no unforeseen actions or surprises from the U.S. during the meeting.

The outcome of these talks remains uncertain, with the future of the U.S.-China trade truce largely depending on the decisions made by the two leaders in the coming weeks.

Source: CNBC

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New Zealand Central Bank's Rate Strategy in Neutral Zone

New Zealand’s interest rates are now positioned within the neutral range of 2.5%-3.5%, following recent rate cuts, with the Reserve Bank of New Zealand (RBNZ) signaling that future moves will be highly data-dependent. Assistant Governor Karen Silk emphasized that past monetary policy easing has not fully filtered through to the economy yet, and as such, the RBNZ is closely monitoring economic developments before making any further adjustments to interest rates.

The RBNZ made a 25 basis point rate cut to 3.25% on Wednesday, continuing a series of reductions that have cumulatively lowered rates by 225 basis points since August. While Silk acknowledged that additional rate cuts are possible, she emphasized that the current neutral rate range suggests no immediate need for further action unless the data points to such a need.

Economic Recovery Amid Trade and Global Uncertainties

Silk also discussed how New Zealand's economy, despite global trade risks and uncertainties, is expected to recover gradually due to the impact of past monetary easing. While trade risks, especially those arising from geopolitical tensions and U.S. tariffs, remain significant, the strong commodity prices are supporting New Zealand’s export sector, helping cushion the economy against external shocks.

The RBNZ’s policy trajectory, including the most recent rate cuts, is designed to stabilize the economy, with Silk noting that decisions about future rate moves will hinge on how economic data evolves in response to ongoing uncertainties. Silk also highlighted that global central banks, including New Zealand’s, cannot react impulsively to short-term developments, such as the latest tariff-related rulings from the U.S., as the long-term impact of such actions remains unclear.

Impact of Past Tightening and Current Economic Conditions

New Zealand had been one of the first global central banks to begin withdrawing pandemic-era stimulus, raising rates aggressively by 525 basis points between October 2021 and September 2023. While this tightening was necessary to curb inflation, it significantly dampened demand and tipped the economy into a recession last year. Though New Zealand is now emerging from the downturn, growth remains sluggish, with weak demand continuing to constrain economic activity.

In addition, a slowdown in the global economy and tight fiscal policies by the government further impede New Zealand’s recovery prospects. The government’s cautious fiscal stance, while designed to manage public finances responsibly, is adding another layer of complexity to the economic outlook, limiting the scope for robust domestic growth.

The Reserve Bank of New Zealand's cautious approach to interest rate adjustments reflects the ongoing balancing act between stimulating the economy and managing global uncertainties. With rates currently in a neutral range and a focus on data-driven decisions, the RBNZ will likely hold off on further cuts unless there is clear evidence that additional support is needed for economic recovery. As global conditions evolve, the central bank will continue to assess whether past policy measures are sufficient to foster sustainable growth or if further intervention is required.

Source: Reuters

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China–U.S. Trade War

Manufacturing Contraction Reflects Ongoing Trade Struggles

China’s factory activity is expected to have contracted for the second straight month in May, according to a Reuters poll, signaling that persistent trade tensions with major export markets are continuing to hamper growth in the manufacturing sector. This follows a trend of declining factory output as global trade pressures and tariff wars weigh on China’s export-driven economy.

The ongoing trade conflict with the U.S., particularly the imposition of steep tariffs under President Donald Trump, combined with disputes with the European Union, has left China vulnerable to external economic shocks. China is involved in simultaneous trade disputes with both the U.S. and the EU, which threatens to disrupt an already fragile economic recovery.

Escalating Tariffs and the Impact on China’s Economic Recovery

The U.S. decision to target China with a 145% tariff has occurred at a particularly challenging time for the world's second-largest economy, which is also grappling with sluggish income growth and a prolonged property crisis. These internal issues are exacerbated by the external tariff pressure, which further dampens manufacturing output. Analysts believe that the prolonged trade tensions could derail the fragile export recovery unless China can reach agreements with the U.S. and EU to mitigate the impacts of these tariffs.

Adding to the trade turmoil, the EU launched an investigation into whether anti-dumping measures should be applied to Chinese tyre imports for passenger cars and light trucks. Furthermore, discussions around tariffs on Chinese-made electric vehicles are also ongoing. In retaliation, China has considered investigating imports of European brandy and dairy products. These actions underscore the intensifying global trade disputes, which continue to affect manufacturers' outlooks.

Monetary and Fiscal Stimulus Likely in Response to Economic Pressures

As the manufacturing sector faces increasing difficulties, Chinese policymakers are expected to implement further monetary and fiscal stimulus measures in an effort to bolster growth and shield the economy from the negative impacts of tariff-related disruptions. Despite these efforts, analysts warn that the tariffs, particularly those imposed by the U.S., could slow down the economic momentum that had been gaining traction in the first quarter of the year.

The Chinese government has maintained a growth target of around 5% for 2025, though analysts suggest that without a resolution to the ongoing tariff disputes, meeting this goal may become increasingly challenging.

PMI Data and Outlook for Manufacturing

The official Purchasing Managers' Index (PMI) for China will be released on Saturday, while the private sector Caixin survey is due for release on June 3. Analysts expect the Caixin PMI to edge up slightly to 50.6 from 50.4 in April, indicating a modest improvement in manufacturing activity, but still signaling weak overall conditions.

The likely contraction of China’s manufacturing sector in May highlights the ongoing challenges posed by trade tensions, particularly with the U.S. and the EU. With deflationary pressures, sluggish income growth, and continued property sector issues, China faces a difficult road ahead in its efforts to sustain economic recovery. Continued monetary and fiscal stimulus will be critical in mitigating the negative effects of trade disputes, but uncertainty remains high regarding the global trade environment.

Source: Reuters

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China–U.S. Trade War

Trade War and Geopolitical Risks Cloud Airline Industry Outlook

At the International Air Transport Association’s (IATA) annual summit in New Delhi, global airline executives are confronting an array of challenges stemming from an unpredictable trade war and escalating environmental obligations. Despite a full rebound to pre-pandemic passenger levels worldwide, the aviation sector faces heightened cost pressures, disruptions in supply chains, and delays in aircraft deliveries. These operational difficulties are compounded by the erosion of a decades-long tariff-free environment in the aerospace industry due to evolving U.S. trade policies under former President Donald Trump. This shift introduces increased volatility and risk, affecting airline planning and financial stability.

While carriers in Europe and Asia report robust demand, the U.S. airline industry is contending with a recent downturn in travel volumes. This disparity adds complexity to forecasting passenger behavior and managing fluctuating operational expenses. Additionally, geopolitical tensions, such as India's ongoing conflict with Pakistan, force Indian airlines to reroute flights extensively, inflating costs and disrupting schedules. Such conflict zones have become an increasing operational burden, with IATA highlighting incidents linked to these areas as a critical safety concern requiring enhanced global cooperation.

Safety Concerns Amid Rising Air Traffic and Incident Rates

The summit also focuses on aviation safety, an issue brought into sharper relief by recent air accidents across Kazakhstan, South Korea, and North America. Coupled with concerns about air traffic control systems, especially in the United States, these developments emphasize the need for sustained vigilance and international collaboration to maintain safe skies amid growing traffic volumes.

IATA's commitment, established in 2021, to achieve net-zero carbon emissions by 2050 largely depends on the adoption of sustainable aviation fuel (SAF) and advances in aircraft technology. However, the transition faces significant uncertainties. Production of SAF remains insufficient to meet demand, with only one million metric tons produced in 2024—falling short of forecasts by a third. The high cost of SAF compared to traditional jet fuel presents a financial challenge for airlines, which are expected to absorb these expenses without adequate support from manufacturers or regulatory frameworks.

Delays by major aircraft producers Airbus and Boeing in delivering newer, more fuel-efficient models exacerbate the problem, limiting airlines’ ability to reduce emissions through fleet modernization. IATA Director General Willie Walsh has recently signaled the need to reassess the industry’s net-zero commitment, reflecting concerns about the feasibility of current sustainability pathways under prevailing economic and technological conditions.

Regulatory and Industry Response

Regulatory frameworks encouraging SAF production remain fragmented and underdeveloped across regions, hindering the scaling of sustainable fuel use. Subhas Menon, Director General of the Association of Asia Pacific Airlines, underscored the mismatch between demand and supply for SAF, as well as the prohibitive costs that deter wider adoption. Without cohesive policy support and investment, the aviation industry risks falling short of its climate objectives, posing strategic and reputational risks for airlines globally.

The IATA summit highlights the complex interplay between geopolitical trade disputes and environmental imperatives shaping the future of global aviation. Airlines must navigate uncertain economic conditions while accelerating innovation and collaboration to meet sustainability goals. The resolution of these issues will be critical in determining the industry's capacity to sustain growth, ensure safety, and fulfill its environmental responsibilities over the coming decades.