Data today don't help in understanding the cycle. PMI headlines softened, but that isn't unusual when Chinese New Year falls in January. The details didn't drop in the same way, but also don't look strong. Separate data for industrial profits did improve, but that isn't a reliable data series.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Despite a surge in capex, GDP growth slowed in Q424 to 1.8% YoY, the lowest since September 2023. 2025 as a whole should be better, with modest growth in exports and private consumption. The upside risk is wage growth feeding into stronger consumption. Downside comes from the Trump tariff threat.
The highlight of today's BOJ meeting, apart from the hike, was the increased confidence around the labour market. That, and the firmness of the dataflow, strongly suggest the bank continues to hike. It doesn't feel aggressive to think of 1% by year-end. Ueda's press conference will give more colour.
My estimate of YoY trimmed mean inflation ticked up for the second consecutive month in December. That matters when the Tankan's measure of output prices has been warning the fall-back in inflation since was overdone. The backdrop is international core inflation settling at 2% saar since August.
Firms haven't responded in textbook fashion to the weaker JPY. While the currency is down 35% since 2019, export volumes have risen just 7%. The reason is export prices haven't been cut, with the weaker JPY instead flowing straight to the bottom line. In JPY terms, exports rose 50% in 2019-24.
Today's GDP release shows Korea's economy only grew in Q124. After that, activity stagnated. Q125 is likely to be worse, given the collapse of domestic confidence after the martial law fiasco, a deterioration confirmed by the BOK's confidence surveys that were also released the last couple of days.
Today's household sector details of Q3 GDP show real incomes rose for a third consecutive quarter. That seems to bring to an end what had been a terrible period for incomes, and with the labour market remaining tight, suggests last year's recovery in consumption should continue.
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.