Official data don't suggest weak consumption. The household survey suggests it is back at the pre-covid trend, and rose relative to GDP in 2024. Retail sales don't show this strength because of rising spending on services.
After diving in December, consumer confidence rose in January, but not much. For the BOK it was good news that expectations for property prices softened again, and ticked down for overall inflation. Near-term price expectations rose, but that likely reflects food prices at the beginning of the year.
If you want evidence of supply chain shifts away from China, Taiwan's data provides it. Exports and FDI show a big move towards the US and other Asia. In today's export order data for December, the overseas production ratio for IT products fell again, and is now at the lowest level since 2007.
The Q4 release was tougher to interpret than usual. It included the effect of the upwards revision in nominal GDP level announced at end-2024, but didn't give a back series for revised NGDP for earlier quarters. Today that history was published. The highlight? Still no change in the deflator.
A video discussing Trump 2.0, Plaza and the outlook for East Asian economies.
Falling rates and a weakening CNY are causing concern, but I don't think they should be. If CNY weakening was pushing up onshore rates, that would be different. But $CNY rising while rates fall suggests a loosening. That doesn't ensure an economic turnaround, but it is better than a tightening.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Consumer confidence in the BOJ's Q4 quarterly survey was surprisingly weak in light of other data suggesting the mood has improved. Sentiment around income remained strong, but consumers continue to complain about high prices.
I think the equity market – as of now SHCOMP is up 0.4% – has it about right. There are signs of a bottoming in the underlying cycle, but not the rebound suggested by the pick-up in GDP from 4.6% YoY in Q3 to 5.4% in Q4.
Already Taiwan's dominant firm, strong 2024 results mean TSMC has now doubled in size just since 2021. The firm remaining bullish for 2025 is this a reason to be optimistic about Taiwan's exports, but also to think the domestic cycle can warm up further. The contrast with Korea is huge.
Contrary to my thinking, the bank didn't cut today. The reasoning – KRW weakness and political uncertainty – wasn't a shock. However, the tone of the meeting was very doveish, with the bank talking about "intensified" downside risks to growth. Korea really looks very different to Japan and Taiwan.
The rebound in import prices is obviously bigger in Korea where the currency has weakened more. Even there, though, the 7% rise is modest compared with the double-digit increases in 2021-22. And the YoY comparison will be dampened in the next few months by the rise in import price inflation in 1H24.
I've revised my model for the BOK's reaction function. That suggests the probability of loosening tomorrow is about the same as the Q4 meetings when rates were cut. Considerations for later in the year are yesterday's SLO survey warning of a rebound in housing, and firm services CPI.
After a dip in 2H24, the non-manufacturing survey is now back to cycle highs. One retailer was quoted as saying: "With high domestic consumer confidence, the number of customer visits....is growing steadily". That's interesting: official surveys don't show consumer confidence is that strong.
December employment fell sharply, and while that can be explained by the ending of some government jobs projects, it fits with the sharper downturn in the cycle in Q424. That will likely be the focus for the BOK tomorrow, despite other data today showing KRW weakness pushing up import prices.
There are signs of a turn in the monetary data. It is tentative, but the rise in M1 relative to M2 is particularly important. If that continues, there would a real reason to feel less negative about the economic cycle.
The recent up-tick in the monthly Economy Watchers survey persisted in December. The outlook is a bit weaker, but still comfortably above the survey's long-term average. While the cycle isn't booming, it does look solid.
Deputy governor Himino today downplayed the risks from the US that were the BOJ's focus in 2H24. He mentioned plenty of caveats too, not least being that speeches shouldn't be read as telegraphing any MPC outcome. But it feels like the BOJ is getting closer to hiking again.
China's exports rose strongly into year-end, while imports remained flat, sending the trade surplus surging. Maybe there's front-loading to beat Trump II tariffs, but it is notable how resilient China's exports have remained when the Trump I tariffs remain firmly in place.
$CNY has started to move this year, but it isn't clear that the currency is yet pricing in tariffs. The sharp fall in onshore rates has further widened the spread with US yields, and that gap alone points to $CNY rising towards 7.7.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Taiwan has the strongest cyclical picture in the region. It isn't gaining further momentum, so rate hikes aren't likely, but nor are cuts. The other big factor is Trump. He won't like either Taiwan's massive trade surplus, or its modest military spending.
Data today show consumption still weak. But I don't think this is critical. Ueda recently was talking about better spending, which is clear in per capita terms. The aggregate is held down by the falling population, but that decline is also behind the increasingly clear trend of wage growth.
The export cycle in Korea has hit a wall, but in Taiwan, there's still no slowdown. That's important, but the highlight of the December trade report was the strength of capital goods imports, which points to a strong domestic capex cycle.
Today's labour market indicators – official wage data for November, and the Q1 regional report from the BOJ – don't suggest that momentum is picking up sharply. But they do indicate that the labour market is tight, and wage growth continuing to trend up.