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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Paul Cavey
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China – stability, but not in property
The activity data for August were a bit better. That's consistent with the stabilisation of prices that, we think, is the most important economic development recently. We doubt that a real upcycle is beginning, but the economy can start to look better relative to beaten-up expectations.
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Region – cycle themes
Recent regional data have two clear themes: stronger inflation, and tight labour markets. The reversal in inflation is positive for macro sentiment in China. It has policy implications elsewhere, with a higher tightening risk. However, exports aren't yet rebounding.
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Japan – renewed labour market tightening?
Today's BSI survey suggests growth momentum remains strong. It is also indicating the labour market is about to tighten quite a lot more. For us (though less so for the BOJ) that has been the missing ingredient in Japan's recovery, and so it would be important if that is now changing.
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Korea – unemployment down again
Korea's labour market isn't quite as tight as suggested by the renewed fall in the unemployment rate in August. Equally, though, there isn't real slack appearing. With headline inflation rebounding in August, this will matter for the BOK if exports now start to rebound.
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China – credit less bad
At a headline level, credit growth was a bit stronger in August, and with PPI up too, that will likely help market sentiment. But the details remain weak, with all the recovery in August coming from government bonds. M1 growth continues to slow, and savings continuing to flow into time deposits.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Subscribers Only
Taiwan – sideways, with upside risks
Taiwan's exports have bottomed, but haven't improved much. Likely, they continue to go sideways for the next couple of months. Beyond that, there are now some upside risks, and so we'd been looking for the soft data to improve from here.
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China – firmer prices
August inflation data raise the probability that the worst of the deflation scare for 2023 is likely over. We doubt there will be much inflation from here, but a stabilisation of prices will likely be a positive surprise relative to weak market expectations.
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Japan – Taking stock
The post-covid recovery is still early, with domestic demand still weak. Full-time wage growth isn't changing much, but in July, part-time wages grew 4% YoY. That isn't enough when commodity price inflation is picking up, and means renewed pressure for JPY intervention.
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Region – understanding Japan's 1990s stagnation
A summary of our thematic work so far looking at the Japan experience of the 1990s and its relevance for China today.
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China – no change
Neither exports nor imports changed much in August. That might mean they are bottoming, and there are some indicators pointing in that direction, but it is easier to make the case for Taiwan and Korea. Exports remain 30% above pre-pandemic levels, supporting the trade surplus.
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Taiwan – inflation holding up
Inflation data in August Taiwan fit with the broader regional picture of a re-acceleration in price pressures. The difference in Taiwan is that this doesn't follow a period where core inflation has decelerated.
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Korea – CPI and tightening risk rises
CPI and tightening probability in our model of the BOK's reaction function both rose in August. The one factor weighing on rates is the weakness of activity, particularly exports. If before its October meeting the BOK gains confidence the export slump is reversing, another hike is very possible.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Subscribers Only
Korea – prices firmer in August
The BOK was hawkish in August, and weekly price data suggest that the fall in CPI since July 2022 is bottoming out. If that is accompanied by a rebound in exports, it will make the BOK quite interesting the next 6M.
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Region – prices turning more than activity
Early data for August don't paint a convincing picture of a cycle that is about to turn up strongly. However, there is evidence that nominal activity has stopped worsening, and given current sentiment around China, even a second-derivative improvement is important.
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China – a touch better
The manufacturing sector has stopped getting worse, and with pricing improving, we are mildly optimistic that this firming can continue. This is more of a second-derivative improvement than a fundamental turn, but any tick up is important when market sentiment is so poor.
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Taiwan – still holding up
The desynchronisation between weak exports and resilient domestic activity is continuing. Despite a couple of warning signs, we'd expect that remains the theme for the next 3M. For an upside surprise, however, export demand needs to recover.
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Japan – employment still confusing
Japan's labour market recovery remains sluggish. That doesn't seem to worry the BOJ, and consumer confidence is suggesting some improvement in nominal earnings. We'd have more confidence that this could continue if published nominal wage growth was also picking up.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Subscribers Only
Japan – underlying CPI firm
Headline inflation in Tokyo did fall in August, suggesting feed through from the sharp fall in goods PPI of recent months. But core inflation was stable at around 2.5%, and services PPI in July was also firm.
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Korea – BOK still hawkish
There was no change from the BOK today, with the bank remaining quite hawkish. It seems the bank might be able to break out of its wait-and-see stance of the last few months at its next meeting in October, with the governor saying that by then he expects to have a better grasp on the outlook.
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Japan – still looking solid
The PMIs for August were solid, though concern was expressed about a renewed rise in energy prices. That could impact consumer confidence, as even part-time wage growth remains below inflation. However, the BOJ continues to think the labour market is tightening.
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Korea – a little softer
Korean activity data are a bit sluggish, with signs that the domestic economy is losing some momentum, while exports aren't picking up. At the same time, inflation is coming down. This probably allows the BOK to become a bit less hawkish tomorrow, but real direction will depend on exports in Q4.