Taiwan's export orders to China continued to drop sharply in August. That is an indication of just how weak Chinese growth is, but is also a warning that a big change may be coming in overall world demand.
Since the pandemic began, productivity has probably increased more quickly in Taiwan than any other major economy. As a result, Taiwan isn't facing the higher inflation and rates being experienced elsewhere. Taiwan's competitiveness instead reinforces structural trends for a stronger TWD.
The headline data were a bit stronger in August, but the details remain weak. It doesn't feel that the government is yet doing enough to really turn the economy around.
The labour market remains tight, making it difficult for the BOK to relax, even as import price inflation starts to recede.
Exports continue to go sideways, which at a headline level is because weaker tech shipments are being offset by stronger car sales. Imports in JPY terms are still rising, so the trade deficit continues to widen.
Upstream goods price inflation softened in August, pointing to a peaking of CPI in the next few months. One risk to that would be a pick-up in services price inflation, but today's quarterly business survey from the MOF suggests the cycle isn't yet strong enough to produce such an outcome.
Overseas, the idea of Peak China is gaining traction, which is quite at odds with the full-on confidence in the further rise of China expressed by leaders in Beijing. The contradiction does suggest a need for policy change, but at least for now, that shift seems like the risk rather than base case.
This is what happened on East Asia Econ this week. Region August export data for China, Korea and Taiwan dropped sharply. That makes it more likely that the industrial cycle is turning, with further weakness to be expected in the next few months. China The three data releases this week were soft: exports fell, dimming what has been the one bright spot for the economy in the last few months;
Monetary data in August remained weak, with little reason to suggest any upturn in the macro cycle.
Food prices pose something of an upside risk, but underlying price trends, particularly in PPI, continue to look more deflationary than inflationary.
The Economy Watchers survey rebounded in August, and is at a level consistent with mild GDP growth. But the survey isn't strong or stable enough to suggest an acceleration in the sluggish pace of the post-pandemic recovery.
Taiwan's exports fell sharply MoM in August, matching the deterioration seen in the Korean export data that were released last week. Leading indicators continue to point to more downside ahead.
Exports are now starting to slide. That's important given they've been the one bright spot for the economy in the last few months. Weakening external demand will mean China's cycle is even more challenged into 2023.
Inflation has likely peaked, and should decline in the coming months. The two risks round that are first, rising food prices, and second, cost inflation in services. There are reasons to think that services price might rise further from here, but for now, that seems like a tail risk.
The wage data don't change the macro picture. Wages are creeping up, but are rising less quickly than inflation. The labour market isn't yet tight enough for nominal wages to accelerate much more.
Probably the two most important inter-related questions today are: whether the economic slowdown turns to financial crisis; and whether the Party Congress leads to a turn in policy. The former seems a bigger risk than the latter, with the CNY likely most vulnerable.
This is what happened on East Asia Econ this week. Region Different data in the last few days suggest the regional industrial cycle is now slowing quite sharply. That should bring down inflation too. China The August official PMIs gave no sign of a change in the economy. Growth remains weak, and even without new Covid-19 lockdowns, doesn't look likely to turn up any time soon. Price indicators
Headline inflation slowed in August, but core remained strong. It is easy to assume the BOK remains hawkish in the short term. But with growth now slowing, pricing around the BOK into 2023 is starting to look more interesting.
Consumer confidence is the second sign of some change in the economy following the July labour market data. These shifts aren't nearly enough to conclude that finally, there is post-pandemic normalisation of the services economy. But that is something to be watching for.
Exports fell in August at the sharpest rate since early 2020. The data are following our leading indicator, which points to exports falling 10% YoY in the next 3M.
The PMI suggests there's a big industrial cycle slowdown in the works. That is important for Taiwan and the TWD. Because it suggests more downside risk for the regional export cycle, the weaker PMI also has implications for Korea and China.
The August official PMIs suggest no change in the economy. Growth remains weak, and doesn't look likely to turn up any time soon. Price indicators continue to suggest deflation is a bigger risk in China than inflation.
While headline coincident indicators were unchanged in July, a jump in the new offers:applicants ratio suggests the sluggish post-pandemic recovery might finally be taking a new step up.
This is what happened on East Asia Econ this week. Region Updating with the latest inputs from July and our model shows the outlook for regional exports continues to worsen. That is particularly important for Taiwan and Korea, given the large share of exports in the economy. In China, the simple export weight isn't so big, but in terms of overall growth external demand has been playing an
Different measures of inflation announced in the last few days show short-term inflation pressure remaining strong. Leading indicators suggest a peak in the next 6M, but that could be wrong if JPY commodity prices take another leg up, or services price inflation in Japan starts to appear.