Welcome back to The Weekly Echo, we’re already into May and this week, the global economy is showing fresh signs of strain. In the U.S., a surge in pre-tariff imports has pulled GDP into the red for the first time in three years, even as jobs growth continues to defy gravity. How long that balance can hold remains an open question.

Abroad, Canada’s manufacturing data is raising red flags, while the UK has finally secured a long-awaited trade deal with India, one of the few bright spots in an otherwise dim global outlook. Oil is swinging, currencies are shifting, and central banks are watching it all with quiet caution.

Let’s dig in.

UK and India Sign Landmark Trade Deal: A £5 Billion Boost?

In a major win for post-Brexit trade diplomacy, the UK and India have signed a long-anticipated Free Trade Agreement (FTA) aimed at deepening economic ties and boosting bilateral trade by 50% over the coming years.

The Big Numbers
The deal is projected to inject up to £5 billion annually into the UK economy and add £4.8 billion to UK GDP over the next 15 years, according to initial government estimates. It's one of the largest trade agreements signed by the UK since leaving the European Union.

What’s in the Deal?

• Tariff cuts: UK exports such as whisky, automobiles, and high-end goods will benefit from substantial tariff reductions, improving competitiveness in one of the world’s fastest-growing consumer markets.
  

• Labour concessions: Indian workers in Britain will be exempt from national insurance payments, a move expected to improve the mobility of skilled labour between the two countries.
  

• Services and investment: The agreement also opens up greater market access for British legal and financial services firms operating in India, a longstanding barrier to UK-India trade.
  

Strategic Timing
This deal lands as the UK looks to diversify away from sluggish trade growth in Europe and court fast-growing economies in Asia. For India, the agreement aligns with its broader “Make in India” and global integration agenda.

The Bigger Picture
While some economists caution that real-world gains may fall short of headline figures, the political and symbolic significance of the deal is undeniable. With general elections looming in both countries, the agreement allows both governments to point to a rare diplomatic success.

What to Watch
Implementation will be key. Rules of origin, compliance, and enforcement mechanisms will determine how quickly the benefits of the deal materialise. But for now, it’s a headline win in a week dominated by economic uncertainty.

U.S. Trade Deficit Widens Sharply, Weighing on Economic Growth

In the first quarter of 2025, the U.S. economy contracted by 0.3%, marking the first decline since early 2022. A significant factor behind this downturn was a substantial increase in imports, which surged by 41.3% as businesses accelerated purchases ahead of anticipated tariffs introduced by the Trump administration.

Understanding the Trade Deficit and Its Impact on GDP

A trade deficit occurs when a country's imports exceed its exports. In the context of Gross Domestic Product (GDP), which measures the total value of goods and services produced over a specific time period, imports are subtracted because they represent spending on foreign-produced goods. Therefore, a surge in imports without a corresponding increase in exports can lead to a decrease in GDP.

Anticipation of Tariffs Drives Import Surge

The Trump administration announced a 10% tariff on all imports, with higher rates on goods from specific countries, effective April 2025. In response, U.S. businesses rushed to import goods before the tariffs took effect, leading to a record increase in imports.

Potential Consequences and Outlook

While the surge in imports was a one-time event driven by tariff anticipation, the resulting trade deficit had a notable impact on the economy. If exports do not increase to balance the trade, and if consumer spending slows due to higher prices from tariffs, the economy could face further challenges in the coming quarters.

Economists are closely monitoring these developments to assess the long-term implications for U.S. economic growth and stability.

U.S. Labour Market Holds Steady Amid Economic Uncertainty

In April 2025, the U.S. economy added 177,000 jobs, surpassing economists' expectations of 133,000. The unemployment rate remained unchanged at 4.2%, indicating a resilient labour market despite broader economic challenges.

Key Sectors Driving Job Growth:

• Healthcare: Added 51,000 jobs, with significant gains in hospitals and ambulatory services.
  

• Transportation and Warehousing: Saw an increase of 29,000 jobs, reflecting ongoing demand in logistics.
  

• Financial Activities: Continued its upward trend with 14,000 new positions.
  

• Social Assistance: Added 8,000 jobs, though at a slower pace compared to previous months.
  

Understanding the Numbers:

The unemployment rate measures the percentage of the labor force that is jobless and actively seeking employment. A steady rate suggests that the number of people entering employment is keeping pace with those entering the job market.

The labour force participation rate, which indicates the proportion of the working-age population that is either employed or actively seeking work, held steady at 62.6%.

Economic Context:

Despite a 0.3% contraction in GDP during the first quarter, largely attributed to a surge in imports ahead of anticipated tariffs, the labour market's stability offers a silver lining.

Looking Ahead:

While the current data reflects a robust job market, economists caution that the full impact of recent trade policies may not yet be evident. Continued monitoring will be essential to assess the long-term implications for employment and economic growth.

Canadian Manufacturing Contracts Sharply Amid Trade Uncertainty

Canada's manufacturing sector experienced its most significant contraction since May 2020, with the S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) dropping to 45.3 in April 2025 from 46.3 in March. A PMI below 50 indicates that the sector is shrinking, and this decline reflects mounting challenges faced by manufacturers.

What is the PMI?

The Purchasing Managers' Index (PMI) is a key indicator of the economic health of the manufacturing sector. It is derived from monthly surveys of private sector companies and provides insight into business conditions, including output, new orders, employment, and supplier delivery times. A PMI above 50 suggests expansion, while a reading below 50 indicates contraction.

Factors Contributing to the Decline:

• Trade Policy Uncertainty: Manufacturers are grappling with unpredictability surrounding U.S. trade policies and tariffs. Approximately 75% of Canada's exports, including steel, aluminium, and automobiles, are destined for the U.S., making the sector highly sensitive to changes in trade relations.
  

• Decreased Demand: The output component of the PMI fell to 42.7, and new orders dropped to 41.2, indicating a significant reduction in manufacturing activity and demand for goods.
  

• Supply Chain Disruptions: Manufacturers reported delays at ports and customs, leading to longer delivery times for inputs. This marks the tenth consecutive month of worsening supplier delivery times, exacerbating production challenges.
  

• Rising Costs: Input prices remain historically high, particularly for metal products, adding financial strain to manufacturers already dealing with decreased demand and supply chain issues.
  

Looking Ahead:

Despite current challenges, there is a glimmer of cautious optimism. The Future Output Index rose to 50.4, suggesting that some manufacturers anticipate a stabilisation of market conditions within the next year.

However, the Bank of Canada has warned that prolonged trade tensions could lead to a significant recession and push inflation above 3%. The central bank emphasises the need for careful monitoring of these developments to mitigate potential long-term economic impacts.

In summary, Canada's manufacturing sector is under considerable pressure due to tariff uncertainties, decreased demand, and supply chain disruptions. While there is some hope for future stabilisation, the current outlook remains challenging.

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Thanks for reading, we’ll be back next week with more clarity amid the chaos.

Best,
Harry & Reika
 Co-Founders, Echonomics

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