East Asia Econ

The surge in exports this year isn't all front-loading and Chinese New Year. Through 2024, Taiwan's export data had been looking light relative to TSMC's sales. That gap has now been closed, meaning strong performance for TSMC can once again be thought of as implying macro strength for Taiwan.

There is funniness in the data because of the holiday effect and likely tariff front-loading. But still, the surges in some of the flows are striking: server and semi sales, exports and the trade surplus with the US, capital goods imports. No sign at all of the sluggishness seen in the Korean data.

The BOJ's proxy for consumption dropped in January to the lowest since 2022. The population is declining, but the January data don't look much better, even in per capita terms. One reason is inflation, which continues to erode household incomes.

This is a good way of showing the contrasting cyclical momentum in China and Japan. Except for the sudden stops during covid, the services PMI in China is the lowest on record. In Japan, it is near the strongest.

Domestic demand in Korea has been weak for a number of months, with the economy supported by exports. But exports are now weakening too, as the semi cycle turns. No wonder the BOK is so worried about growth.

The rebound in price expectations in Taiwan's consumer confidence survey is starting to look interesting. It isn't just Chinese New Year, with the rise beginning in October last year. Certainly not grounds for the CBC to be cutting rates. Perhaps a reason to hike?

In YoY terms, the trend in services PPI inflation is still up, but sequentially it is starting to look like it has peaked at a bit above 2%. There might get another boost from a strong shunto, but 2% pipeline inflation looks light for getting sustainable CPI of the same rate.

Adjusted for holidays, and exports barely grew in the first 20 days of February. The big driver is the downturn in semi shipments. Equity performance suggests the relative underperformance of Korean exports relative to China and Taiwan will continue.

Data today show Taiwan's export orders dipped in January, but that was likely because of the Lunar New Year. Our broader leading indicator shows export growth remaining around 10% YoY in the next few months. More interesting in today's data is the continued fall in the overseas production ratio.

Consumer confidence rose again in February but remains well below the LT average; moreover, the improvement is only being among younger people. At the same time, CPI and property price expectations softened. There will be more news tomorrow with business sentiment.

Deflation eased in January, but only slightly. That's no surprise, given mortgage lending also remained weak last month. The sluggishness is persisting despite low rates, and the failure of rate cuts to revive the quintessentially rate sensitive sector remains a standout feature of this cycle.

Services sector sentiment in the Reuters Tankan remained elevated in today's February survey. Manufacturing is much weaker, and that remains something to be watching given the extra downside risk from tariffs. But in terms of Japan's cycle, Q1 is likely to be another decent quarter.

Today's Q424 data show a continuation of the pick-up in household lending from the trough of early 2023. But at 2.4% saar compared with 8% before 2020, the rebound is mild, and slower than GDP growth. For an economy where most indicators have been deteriorating, that's one bit of good news.

Like Japan, Taiwan had years of slowing wage and price inflation. And so, similarly with Japan, the turn in wage growth since the financial crisis is as much structural as cyclical. There's no sign of price inflation becoming problematic, but this wage picture suggests it isn't going back to zero.

Today's PBC data show another steep fall in mortgage interest rates in Q4. Rates are still 3%, so can go lower still. However, before 2020, real estate would be booming by now. That there's little reaction this time shows the problems in the real estate market won't be solved by rate cuts alone.

Import price inflation did rise in January, but PPI inflation was much higher, and the relationship between the two has clearly weakened. One driver is the cutting back of gasoline price subsidies, a policy that had held back PPI even as import prices surged in 2021-22.

10-day data are never the most robust indicator, and particularly in February given the January holidays. Still, it is notable that there's no turnaround in the export slowdown that began in Q4. Indeed, adjusting for working days, exports have fallen this month for the first time since late 2023.

There's plenty of evidence that in nominal terms, the economy is growing strongly. After adjusting for prices, however, growth in real terms isn't nearly so impressive. The Economy Watchers survey today suggests RGDP is expanding, but no more quickly than it was before 2020.

Still no sign of any oomph in Japanese aggregate consumption, with today's release of the BOJ proxy for December basically flat-lining. The trend in consumption in per capita terms is better, but it is the aggregate data that matter for GDP.

Both the official and Caixin mfg PMIs fell in January. That doesn't tell us much. When Chinese New Year falls in January, it isn't unusual for the PMI to rebound with the rise in working days in February. The sharp drop in jobs in the Caixin is a concern, but wasn't seen in the official version.

The link between consumer confidence and prices has weakened in the last 18M. But it hasn't broken, as January data show: consumer confidence fell quite sharply this month, as price expectations rose. The implication is that while nominal wages are rising, they still aren't going up quickly enough.

SPPI inflation remains in an uptrend, and is now running around 3.5% saar. A few months ago the BOJ rejigged the data to include a breakdown by labour content, and that shows SPPI rising most quickly in high-labour industries. This will give the bank further confidence in its price-wage story.

Export volume strength sustained through end-24. From the low of early 2023, shipments have risen by 30%. That's a growth rate rarely topped in the last 15 years, despite today's headwinds of tariffs and a global market share that is already large. Import growth, conversely, has rarely been weaker.

My estimate of YoY trimmed mean inflation ticked up for the second consecutive month in December. That matters when the Tankan's measure of output prices has been warning the fall-back in inflation since was overdone. The backdrop is international core inflation settling at 2% saar since August.

Firms haven't responded in textbook fashion to the weaker JPY. While the currency is down 35% since 2019, export volumes have risen just 7%. The reason is export prices haven't been cut, with the weaker JPY instead flowing straight to the bottom line. In JPY terms, exports rose 50% in 2019-24.