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Given the global uncertainty, the headline manufacturing PMIs released in the last couple of days for China and Japan didn't look too bad. The tariff impact is much more visible in today's Korea and Taiwan PMIs, both of which declined sharply.
Today's BOJ's GDP downgrades were all about tariffs affecting corporates. The bank didn't sound worried about consumption. But in today's data releases, the manufacturing PMI ticked up, while consumer confidence fell sharply to a level that's only been lower three times in the survey's history.
The gap in GDP growth that has opened up between Korea and Taiwan since 2020 reflects exports, but also consumption. Data today show Korean retail sales did perk up in March. But even after that, sales are still barely above the level of late 2019, while in Taiwan they've grown almost 15%.
Goods consumption in Japan continues to struggle, with real etail sales dropping in March back to the lowest level in two years. Services consumption has been stronger, but the renewed deterioration coincides with a rebound in inflation, which is once again squeezing real incomes.
Korea was weak even before tariffs, contrasting with more resilience in Taiwan and Japan. In Taiwan, that's been because exports have offset weakening domestic demand, a pattern that hasn't yet changed: consumer confidence declined again in April, but the monitoring index through March held up.
YoY services PPI in March continued to run at above 3%, led by price rises in more labour-intensive sectors. Sequential momentum has eased a bit in recent months, but should get another boost in April, as the latest annual wage round feeds into price rises at the beginning of the new fiscal year.
As with the Reuters Tankan, the S&P manufacturing PMI didn't fall in April. The services PMI also rebounded, and the commentary shows no sign in the trend: "inflationary pressures strengthened, with input prices rising at the sharpest pace since February 2023 and output charges increasing solidly"
The clearing of some of Korea's political uncertainty hasn't helped consumer confidence. It hardly rose in April, even though the survey was taken after Yoon's impeachment verdict. Inflation expectations remained near 3%. Property price expectations also ticked up, but not as quickly as in March.
Taiwan isn't seeing the big supply-side labour market shifts visible in Japan and Korea. The participation rate hasn't risen, and the proportion of part-time jobs remains in low single digits. As a result, ageing is constraining labour supply in a way that hasn't been apparent elsewhere.
Japan shows signs of pent-up inflationary pressure, with PPI rising despite a decline in import prices. In Korea, by contrast, the usual relationship hasn't broken. If USD strength really has ended, KRW import prices will decline further, making it easier for the BOK to focus on the weak cycle.
Exports for the first 20 days of April were weak, falling -5.2% YoY. That isn't because of tariffs: the downcycle in Korean exports began in mid-2024. With tariffs, however, the weakness in exports can be expected to intensify. The equity market is already pricing in double-digit declines.
My leading indicator suggests a clear rolling over of the export cycle even before the real hit from tariffs begins. It might be a bit too early yet for that hit to be showing up in hard export data, but next Monday's trade statistics for Korea for the first 20 days of April will be a test.
JBRC this week reported March part-time wage growth jumping to 5.6% YoY. Some of that looks like catch-up with the official data, but the commentary was interesting, with the rise being attributed in part to this year's shunto. The labour market continues to look very tight.
Bits and pieces today. Machine orders were stable in February. The April Reuters Tankan didn't show much deterioration, even though the survey was conducted after "Liberation Day". At least for services, one continued driver is tourism, with visitor numbers in Q1 surpassing 10m for the first time.
Today's property price data showed continued falls in March, though not as deep as the cuts late last year. Putting that with CPI, PPI and equities, and it is clear that all-economy prices remain in deflation, with little change following the government stimulus from September last year.
KRW import price inflation has slowed to 3.4% YoY. In USD terms, import prices are falling. The gap is the exchange rate, and that boost to inflation makes the KRW an issue for the BOK. The KRW has now recovered the drop triggered by the martial law declaration, easing some of the BOK's concern.
Wage growth in Taiwan has been famously low for years. But in manufacturing, there are signs of change, with growth averaging around 4% since 2024. Services isn't so strong, but the trend growth in economy-wide wages is now up to 2.5%, higher than any time in the 25 years.
In today's BOJ quarterly consumer survey, inflation expectations remained strong, just as they had in the corporate Tankan last week. Given tariffs, this is not nearly as significant for the BOJ as it would have been, but it is better to be facing Trump's shock with inflation rather than deflation.
Exports in April didn't grow. The sluggishness of sales this year contrasts strongly with the surge in shipments from Taiwan. This isn't a great position from which to be drawn into a trade war, which for Korea is still very much alive: Trump's tariff reprieve doesn't extend to his auto tariffs.
The slight moderation in March wasn't big enough to change the vertical trend rise in Taiwan's trade surplus with the US. Maybe the tariffs will cause a bigger change. At the least they will cause a slowdown in exports, which remained strong last month, led by another record month for TSMC.
Core inflation eased in March, and is now down to a bit over 1%. The fall in oil prices should mean downside risk for headline from here too. That's important because of the likely recession that's now ahead. Equities are suggesting exports fall 10% in the coming months.
Pulled by the policies of previous US administrations and pushed by rising China competition in EM, Korea has focused more on the US market. As a result, US tariffs will hurt more than they would have a few years ago, and with domestic demand weak, there's not much else to support the local economy.
Profits rebounded YoY in Jan-Feb, but in level terms remain subdued. That overall picture, however, masks big sectoral differences. Aggregate profits in heavy industry have fallen, and are no higher than in 2013. Earnings in machinery and electronics are more stable.
Sequential momentum in services PPI has eased in recent moths. However, the data have been volatile since covid, and in 2023 and 2024 there was a big re-acceleration at the beginning of the new fiscal year. Given continued wage growth, a rebound seems likely in April 2025 too.
Consumer confidence fell back again in March, and remains well below the long-term average. However, general inflation expectations were stable, and while house price expectations ticked up, the change isn't enough to suggest a big acceleration in the real estate market.