After adjusting for days worked, Korea's exports in the first 20 days of May fell YoY for the second consecutive month. But this isn't a tariff shock: in level terms, exports peaked back in mid-2024. If anything, May was a bit stronger, led by a rebound in semiconductor shipments.
This year's surge in export orders continued in April, but the drop in the diffusion is warning of a pullback. For the current account, the strength in exports this year has been offset by rising imports and a smaller income surplus. For the TWD, export inflows have been offset by equity outflows.
Headline YoY data are still benefiting from the Q4 pick-up, meaning another 5% growth quarter is likely. But sequentially, growth is slowing again, with no sign of any turnaround in construction that might put a sustainable floor under the overall economy.
After a clear improvement from September, property price deflation since December has settled at an annualised pace of around -1.5%. Sluggish mortgage lending isn't pointing to a further recovery from here. On these official data, average prices are now down 6% from the peak in 2021.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
The details of today's GDP release were decent, with capex and consumption per capita ticking up. Ordinarily, those details would matter more than the slight export-driven QoQ decline in GDP. But the fall is worrying, with the recent drop in sentiment surveys warning of a bigger decline ahead.
YoY import prices are falling everywhere. The implications are mixed. It is contributing to a drop in PPI inflation in Korea, but an intensification of deflation in China. In Japan, meanwhile, PPI inflation remains elevated, supported by the cumulative rise in import prices of recent years.
A video bringing together the arguments I have been making for the last few months on how the economic factors that that helped anchor the TWD in its tight 28-33 range from the late 1990s are now changing.
Today's monetary data continue to suggest that the economy has bottomed, but don't point to a big recovery. Non-state and mortgage lending have stopped deteriorating, but don't show signs of the sort of recovery that would lift economic activity.
Optimistically, you could argue that the sharper drop in upstream prices though May is driven by the falling global oil price, a decline that is good news for China. But the details show the prices of other products are dropping too, and the upshot will be a yet faster pace of PPI deflation.
Unemployment remains low, but wage growth isn't accelerating. The reason is the big structural changes in the labour market of recent years, which have increased the number of part-time jobs. That shift is likely to reduce the bargaining power of labour, and generate a structural slowdown in wages.
The gap between PPI and import prices is a useful way of thinking about inflation and the BOJ. Usually, the gap is closed as import prices are cut by a combination of global recession and JPY strength. If neither happens, PPI inflation isn't likely to recede, and BOJ hikes will remain on the table.
Tariffs are reinforcing the hit from rising prices, causing a sharp fall in corporate confidence in the April EW survey. Household sentiment was stable, but USDJPY rising back to 150 means downside risk. That keeps rate hikes on the agenda, though the BOJ would clearly like tariffs to fall first.
A key component of the structural shift in the economy is rising wages. That continued in March, with signs of another acceleration in manufacturing wage growth on the back of strong exports. As a result, overall wage growth is once again over 3%, as quick as during the recovery out of covid.
The market sees TWD moves as a function of US pressure and lifers. The CBC says it is all about exporters. I see a step-change in exports from 2020 that has ended deflation and exacerbated the CA surplus. The TWD consequences of that shift are stronger if US tariffs don't trigger a global recession.
Today's 10D May export data were stable, but that won't ease the growth concerns visible in last week's minutes of the BOK April meeting. It seems the member who voted for a cut was weighing more than 25bp. But another member warned against being "bold", saying that monetary easing wasn't working.
The sharp drop in exports in the first 10 days of May doesn't show tariffs are having an impact. Rather, the decline was because of a fall in the number of working days. But the data do show that Korea's export cycle remains weak, with shipments in level terms treading water for a year.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
After the deflation of much of 2024, core sequential inflation has now been positive for six months. But it is now still only +0.2% annualised, and doesn't look to be going higher. Indicators for PPI suggest even more deflation ahead, with the one exception being the decline in the USD.
With the slowdown in official wage growth in the last couple of months being so sharp, and so at odds with other labour market developments, I would assume it is due to technical factors. I'd be more concerned if the new shunto isn't reflected in this month's SPPI print, and wages next month.
Data released yesterday showed April as being another boom month for Taiwan exports. TSMC's sales today suggest exports might be stronger still, with TSMC's revenue rising even more quickly than in the 2020-21 post-covid recovery. That's remarkable, even allowing for front-loading.
The expected fall in exports to the US did happen in April, but that was offset by stronger shipments to ROW. I wouldn't expect that to continue, but it is worth noting that today's data showed an increase in imports of components, which would usually indicate stronger exports in the next 3M.
A lot of market discussion in recent days has centred on hedging by the lifers. The central bank, however, has argued that the move in the TWD was driven by exporters. That is believable: exports grew remarkably strongly in 2020-22, and have done so again through April this year.
My framework for Taiwan and the TWD is a structural economic recovery driving a normalisation of inflation after the near deflation of the 20 years before 2020. That remains the theme, but there is now a clear cyclical slowing of CPI. That will intensify if tariffs trigger an export recession.
The exact timing of monetary easing can vary, but today's interest rate and RRR cuts are not a surprise. Today's moves are consistent with the PBC's usual reaction function, and with inflation so weak, further loosening should be expected.