East Asia Econ
There continues to be no inflation in China. At a headline level, that will change when food prices rebound. But the decline in inflation isn't just seen in headline. The run-rate of core has slowed from 1.8% annualised before covid to 0.6% since.
As a general trend, both exports and imports remain range-bound. That's interesting, because exports haven't fallen so far from the peak, and imports look much stronger than the collapse in property. Exports have probably bottomed, but there's likely downside risk for imports.
One reason for the sluggish recovery out of covid is Japan entering a new stage of ageing, which is resulting in a faster rate of population decline. That is because of a fall in the number of adults, which cuts aggregate consumption, but should mean per capita wage growth starts to accelerate.
Sequential inflation dropped back to zero in November, but average core over the last three months remains elevated. With the domestic economy holding up, and exports starting to rebound, there isn't a strong case for rate cuts. That will matter for the TWD if exports really do rebound from here.
Fiscal and monetary policy have been negative for household incomes, which are now the weak link in the economy. That context helps explain deputy governor Himino's speech today, which seems to mark an effort by the BOJ to argue that higher rates might not be so bad for the economy after all.
Tokyo CPI for November reinforces the message of national CPI for October that inflation has peaked. With $JPY turning too, that makes the macro outlook for Japan more positive. That's because it removes a factor that has been weighing on real incomes, clearing the way for a consumption recovery.
As expected, inflation eased in November. There are still some upside risks, given the rebound in import prices and the continued strength in personal services inflation. For those to become interesting, export growth needs to pick-up powerfully, but the leading indicators don't look so strong yet.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Korea's PMI is now back at 50, but while Taiwan's remains below that level, the upside potential looks bigger. Taiwan domestic momentum also looks stronger. Inflation is higher in Korea, but the risk that the central bank has to raise rates again next year is probably a bit higher in Taiwan.
Japan's labour market continues to go sideways. We think that is unlikely to change without an acceleration in economic growth and thus labour demand. But if that does happen, there are reasons to think the upturn in per capita wage growth could be significant.
We think the main themes for China remain weak aggregate demand and pricing, and strong external surpluses. That indicates lower rates and a stronger CNY. To think that is too pessimistic, we look for signs of better property activity and a reversal of the flow of savings into time deposits.
The BOK was more doveish today than we'd expected, removing one of the two previous references in the statement about whether to raise rates further.