East Asia Econ

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.

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.

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.

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.

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.

China's exports rose strongly into year-end, while imports remained flat, sending the trade surplus surging. Maybe there's front-loading to beat Trump II tariffs, but it is notable how resilient China's exports have remained when the Trump I tariffs remain firmly in place.

$CNY has started to move this year, but it isn't clear that the currency is yet pricing in tariffs. The sharp fall in onshore rates has further widened the spread with US yields, and that gap alone points to $CNY rising towards 7.7.

Data today show consumption still weak. But I don't think this is critical. Ueda recently was talking about better spending, which is clear in per capita terms. The aggregate is held down by the falling population, but that decline is also behind the increasingly clear trend of wage growth.

Base pay for full-time workers has plateaued at a bit below 3% since Q324. That loss of momentum isn't especially worrying: in 2023/24 there was a similar pause before real-acceleration. Part-time wage growth continues to trend up, reaching 4.7% YoY in November.

There are other things that explain Korea's economic underperformance relative to Taiwan since 2020, with consumption being one of them. But the stumbles at Samsung are still particularly important, happening while TSMC goes from strength to strength.

Given the relationship is far from perfect, it would be wrong to read too much into this first chart. However, it is still notable that the rebound in consumer confidence hasn't relapsed despite the continued strength of inflation expectations. That at least gives a hint of substantive change.

While full-time worker pay clearly matters, it is also important to watch wage inflation for part-timers. That this is already running at 4% illustrates the real tightness in the labour market. There's more upside ahead, with reports that the big retailer Aeon is planning another 7% hike in 2025.

Headline inflation ticked up in December to back above 2%, but core continued to ease. With property cooling too, the likelihood of further monetary tightening is receding. At the same time, the strength of semi equities and the services PMI mean no urgency to cut either.

Taiwan's export orders data today show another decline in the overseas production ratio, especially for electronics products. That implies some move in the supply-chain from China, which helps boost Taiwan's growth, but at the expense of more direct trade and a surging trade surplus with the US.

Today's data show inflation excluding all food and energy in November at 2% saar. Some of the details are also firm, with the diffusion stable and a further pick-up in rental inflation. That though is still at less than 1%, and anyway, wage inflation now seems more important for the BOJ than CPI.

The weak JPY is having little impact on Japan's export performance. Yesterday's November data show export volumes still very sluggish, and continuing to underperform the rest of the region. Services are doing better, though even here, Japan isn't clearly outperforming.

Services sentiment in the PMI is recovering from the October drop, but not as quickly as in other surveys. The tone on jobs and prices survived that dip, and concerns about "labour constraints and the impact of rising costs", with feed through to output prices, were prominent again in December.

With the strong trend growth in TSMC's sales since the end of 2023 holding, it makes sense that the pick-up in manufacturing wage growth is too. Neither TSMC nor manufacturing are the whole economy, but they are important components, and put Taiwan's cycle in a very different state to Korea.

Yesterday's BIS credit data for Q2 show why shifting to "loose" monetary policy isn't simple. The loosening of 2008-09 kicked off a rise in credit that hasn't stopped even though policy since then has been "prudent", and that in turn been a big obstacle to policy officially turning loose again.

On my estimate, China's seasonally adjusted trade surplus in November reached a new all-time high. This is partly about firm exports, more evident in volume than values. But it is also about weak imports, which however they are measured, have now been going sideways for almost two years.

In YoY value terms, November data confirm that the export cycle has peaked. However, there still isn't much slowing yet because in MoM terms, exports are still gradually trending up. Moreover, at least through October, exports volumes remained strong. Semi is leading the rise.

Today's 2nd release of Q3 GDP data was revised up to 1.2% saar, on the back of stronger capex and exports, but consumption was revised lower. The rise in today's EW survey suggests growth has improved further in Q4. The cycle is solid more than spectacular, but shows no damage from the July hike.

There's no sign of any faltering in the latest acceleration in nominal wage growth that began in 2023. That's true for both full- and part-time workers. For full-time workers, real wage growth is also improving, though so far, the extent of the change is just that earnings are no longer falling.