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.
The BOK remains hawkish, continuing to stress that containing inflation is its number one goal. It will probably be at least another couple of month before the growth picture starts to challenge this stance.
The business sentiment survey shows activity remains reasonably firm, while inflation momentum is fading. At a minimum, the pace of BOK tightening should be slowing.
The recent sharp rise in inflation expectations stalled in August. That takes some pressure off the BOK, but for the central bank to relax, services inflation and growth need to slow more.
Today's rate cuts were focused on mortgages. That follows Q2, when home loan rates fell at the sharpest pace on record, and yet property remains weak. There likely needs to be more direct help for developers and consumers, and a more united policy showing from Beijing, to get the cycle going.
Foreign trade data releases from Japan, Taiwan, and Korea today aren't entirely consistent, but it does look like exports are no longer growing, with signs of a slowdown in demand from the US beginning to appear.
This is what happened on East Asia Econ this week. Region The continued fall in upstream inflation in China is important for the rest of the region: as an example, Chinese input prices tend to lead those in Korea. But the deflationary trend in China should also have implications for the rest of the world. The current weather-related supply disruptions in Sichuan and elsewhere at most are only likely to
Inflation rose again last month, and further rises are likely. The steep coincident increase in inflation expectations raises the risk that the rise in CPI could be sustained, but that would seem more likely if services prices were also increasing more quickly, and the labour market tightening.
PPI inflation and saver liquidity preference are two indicators worth monitoring as leading indicators for China's cycle. Data releases in the last few days don't suggest either are turning up, though corporate liquidity preference last month at least didn't worsen further.
Q2 GDP shows economic recovery remains slow and uneven, with downside risks in early Q3. Capex is rising, but really only in nominal terms. Exports are going sideways, though there might be some upside risk from autos. Relatively high inflation will likely peak soon. The monetary base is shrinking.
The cycle is weak, and yet the market was surprised the PBC cut rates yesterday. Central bank rhetoric had been suggesting rates had bottomed. But low inflation and signs of rising real rates make it more likely that rates fall rather than rise.