World Bank upgrades UAE growth forecast

The World Bank has revised up its 2025 forecast for the GCC countries in its mid-year revision forecasts, now seeing the UAE as expanding at 4.6% this year, compared with is earlier projection of 4.0%. The GCC as a whole is expected to see growth of 3.2% this year with the Bank citing a faster phasing out of OPEC+ production curbs than previously signposted alongside a robust performance in non-oil economies.

Elsewhere the changes are more bearish, as might have been expected given the eruption of trade and tariff wars since the last projections were released at the start of the year, and the general trend has been to revise economies’ outlooks down. Global growth is now forecast at 2.3%, down from 2.7% at the start of the year, with trade uncertainty cited as the primary reason for the weaker outlook. The US got a particularly harsh downgrade to growth of 1.4% this year, down from 2.8% in 2024 and from the earlier projection of 2.3% for this year. The White House pushed back against this narrative. The World Bank has not downgraded its China forecast, keeping it steady at 4.5% despite it coming under particular focus in terms of Trump tariffs. The World Bank reasons that the Chinese government still has monetary and fiscal space to support its economy. The 4.5% forecast back in January was already fairly bearish and is now in line with consensus projections.

There has been some positive progress in the trade negotiations taking place between the US and China in London, with officials agreeing on a plan to implement the agreement previously reached in Geneva but which broke down with accusations from either side that the other had been reneging on the deal. Officials will now take this provisional plan to Presidents Trump and Xi. Meanwhile an appeals court in the US ruled that the government’s tariffs could remain in play for now. All eyes will be watching the May CPI inflation print from the US later today to see to what degree tariffs are feeding through into hard price data already. The consensus prediction is for 2.5% y/y though there is a high degree of uncertainty around the trend at present, complicating the Federal Reserve’s decision-making process ahead of its next rate-setting committee meeting next week.

Labour market data out of the UK yesterday was weak, with a 109,000 fall in payrolled employee numbers in May, the largest monthly drop in five years and far worse than the predicted 20,000 decline. The April figure was revised to a drop of 55,000, from 33,000 on the initial print. The headline unemployment rate ticked up to 4.6% in the three months to May, from 4.5% previously. A large share of the decline in jobs was in retail & hospitality, suggesting that the hikes to the minimum wage and national insurance contributions from employers implemented from April are having a negative effect on headcount.

Today’s Economic Data and Events

16:30 US CPI inflation, % y/y, May. Forecast: 2.5%

Fixed Income

• There was little material change in USTs on Tuesday as markets awaited the May CPI inflation figures due later today. Yields on the 2yr ticked up 1bps to 4.0181% while the 10yr was down by 0.4bps to 4.4699%.
• UK gilts rallied on the weak job numbers as rate-cut bets were bolstered. Yields on the 2yr dropped 8bps to 3.919%, while the 10yr was down 9bps to 4.542%.

Currencies

• The dollar index closed up 0.2% yesterday, boosted by positive noises around US-China trade talks in London. A lot of the gains came against GBP which closed down 0.4% to 1.3500 as labour market data came in weak. EUR closed almost flat at 1.1425 while JPY closed down 0.2% at 144.87.
• Commodity currencies fared better with both AUD and NZD up 0.1% and CAD closing 0.2% stronger at 1.3671.

Equities

• There was broad risk-on tone in equity markets yesterday, with Germany’s DAX as a notable exception closing lower by 0.8%. The UK’s FTSE 100 added 0.2% as the pound weakened, while there were robust gains in the US with the Dow Jones, the S&P 500, and the NASDAQ adding 0.3%, 0.6% and 0.6% respectively.
• Locally, the DFM closed up 0.1% while the ADX gained 0.5%. Saudi Arabia’s Tadawul closed 1.6% higher.

Commodities

• Oil prices slipped on Tuesday amidst mixed signals on global tariffs. Brent futures ended the day 0.3% lower at USD 66.9/b while WTI fell 0.5% to USD 65.0/b.