Economy in Brief: February 2025

Manufacturing PMIs in January show continued weakness; the median for the 18 countries and the table weakens slightly in January compared to December and remains weaker than the November median as well. Diffusion calculations, however, show that there are more reporters and the table with manufacturing PMIs improving month-to-month in January with 61% of them improving compared to only 28% of them in December.

Progressive statistics that look at the percentage improving in three-months compared to six-months as six-months compared to 12-months and 12-months compared to a year-ago show diffusion improving from 39% to 44% to 67%-sequentially. For the current 3-month versus 6-month comparison, diffusion shows improvement in 67% of categories. Diffusion has been steadily rising, as the sequential comparison demonstrate, although that has not been accompanied by a steady increase in the median reading for the group – indicating how complicated it is to develop overarching metrics for the group. The median reading for 12 months is at 50; over six months that slips to 49.6 and over three months there's a slight recovery to 49.8. Diffusion indexes improve in three months compared to six months, but they're still lower than they have been over 12 months on average and the reading for diffusion over three months shows a tendency for manufacturing to contract.

The far-right hand column presents queue rankings that order the January estimates on data back to January 2021. On that basis, there are only six of the 18 observations that lie above a rank at the 50th percentile which means there are only 6 (or 1/3) above their medians for this period. Countries with observations above the median are Russia, India, Canada, Mexico, Indonesia, and Taiwan. The average of the median ranks is 40.8 percentile, a number clearly below breakeven output at 50 and indicating shrinking manufacturing activity in general.

The rankings by individual countries still show a great deal of variation and weakness. Japan and China, for example, have queue standings for the manufacturing observations in January that are in their 14th and 16th percentile rankings - these are extremely weak. Vietnam is in its 28th percentile, Turkey is in its 24th percentile, but even France has a reading only in its 22nd percentile. The euro area has a ranking at its 40th percentile, the same as Germany with the same ranking as the United States which is also in its 40th percentile. Manufacturing simply continues to be weak in January.

In January, eight of eighteen observations log diffusion values above 50 (indicating manufacturing expansion); this compares to seven in December and eight in November. Sequentially the three-month average of the PMI readings shows seven over 50-for three-months and six-months with nine averaging above 50 for the full 12-months. There has been slippage in recent months compared to the 12-month performance. And there may be more trouble ahead.

This week, we examine the actions taken by the new US administration in the context of Asia. US President Trump is now following through on policies he raised during his electoral campaign, imposing 25% tariffs on Canada and Mexico, and 10% tariffs on China—countries with which the US has the largest trade deficits (chart 1). These measures have already sparked retaliatory actions. As a result, investor concerns about global growth are starting to materialize. Many of our Blue Chip panelists, for instance, having already downgraded their growth forecasts for Asia due to the risks posed by these US actions (chart 2).

We also explore growing US-China competition in the AI sector, with recent steep market sell-offs (chart 3) following the revelations about China’s DeepSeek AI model. A key factor driving China’s AI ambitions is the availability of AI chips, which faced the possibility of tighter export controls ahead of Trump’s return to office. This likely prompted China to stockpile supplies in anticipation (chart 4) and accelerated its pursuit of semiconductor self-sufficiency.

Finally, we turn to the Lunar New Year, the Year of the Wood Snake, and examine tourism trends both within China and outbound. Investors and officials alike are closely monitoring Chinese travel patterns—both domestic (chart 5) and international (chart 6)—as a key indicator of consumer health. However, country-specific developments, such as recent abduction scares in Thailand, are threatening to impact Chinese tourism receipts.

US trade actions so far A trade war may have now begun. US President Donald Trump has followed through on his earlier threats, imposing tariffs on imports from Canada, Mexico, and China. Specifically, Trump announced a 25% tariff on Canadian and Mexican imports, and a 10% tariff on Chinese goods. In response, Canadian Prime Minister Trudeau has introduced retaliatory tariffs of 25% on US imports worth approximately $105 billion. Meanwhile, Mexico and China have vowed to take countermeasures, with China filing proceedings with the World Trade Organization. One of Trump’s key justifications for these actions is to reduce the US’s substantial trade deficit, which is primarily driven by imports from these aforementioned countries, as shown in chart 1.