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Data inconsistencies are commonplace in economic analysis, and not just in China. Even so, that it is possible to claim that in the same month Chinese retail sales grew by 1%, 5% or 60% is problematic. We remain sceptical that the economy has recovered as much as official data suggest.
That property price inflation eased in April is no surprise, given the softening of all other real estate indicators this month. But it is still worth noting, especially given other data showing mortgage rates falling to new record lows. If policy can't turn the market around, then what can?
China's official activity data for April were soft, with IP, FAI and property construction contracting MoM, and retail sales slowing. Early indicators for May don't suggest a turnround, with the fall in industrial prices accelerating so far this month.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
A summary of our latest thematic piece on services and inflation.
Taiwan's data continue to show that the manufacturing sector remains in recession, but that hasn't yet defused the deflationary pressure of the last few months. Indeed, wage growth in manufacturing continues to run at 3-4% annualised, which by Taiwan's standards is quite high.
A chart pack summarising our current views
After a strong start to the year, April credit growth was weak. The apparently short-lived credit cycle is reminiscent of 2020, but three years ago and the economy was boosted by exports and property. Real estate is much weaker this time, with mortgage lending collapsing again in April.
That China is in deflation – both PPI and CPI fell MoM in April – while the rest of the world struggles with inflation really is a remarkable outcome. Underlying inflation isn't quite that weak: core CPI inflation remains around 0.7% YoY. But still, there really isn't upwards pressure on prices.
The labour market went sideways in April, keeping the unemployment rate at 2.6%, the lowest since the 1990s. Non-manufacturing business sentiment suggests employment will remain around current levels for the next 6M. That doesn't seem likely, on its own, to bring down core inflation.
China's exports weakened a bit in April from the heady level of March, but remained strong relative to usual indicators of export demand. Imports remain weak, a reminder of the softness of the domestic industrial cycle. The trade surplus continues to widen.
Manufacturing is in recession, but employment is rising and core inflation not falling. With services normalising after covid, this unusual set-up can persist. That's particularly true in Japan, but in Korea and Taiwan too, it looks like a DM recession will be needed to bring down core inflation.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Japan's cycle is gaining momentum, led by a recovery in services. In this context, the recent softness of the labour market data looks even odder. The BOJ's outlook report wasn't concerned, highlighting this year's strong shunto round. This will keep upwards pressure on core CPI.
The recovery in tourist numbers over the May holiday was impressive, and the Markit PMI was strong again. But our impression remains that the pickup in overall activity is underwhelming.
Core inflation is only 2%, but that's high by Taiwan's historical standards, and relative to the current extreme weakness of manufacturing. Inflation is being supported by the post-covid normalisation of services, a phenomenon that will be attracting the attention of the central bank.
The case for BOK cuts is simple: the cycle has weakened, headline CPI is falling, and core will follow. But so far, our model suggests only a modest easing of tightening pressure, and there are now signs of activity bottoming. The missing ingredient remains a slackening of the labour market.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Taiwan's domestic economy and inflation are proving more resilient than the weakness of the export cycle would suggest. This desynchronisation is partly due to covid, and as long as it persists, means the usual ways of looking at CBC behaviour could well prove misleading.
We've been more cautious on the outlook than the consensus, and remain so after the official April PMIs. The one indicator that gives us pause for thought is the strength of the construction PMI, but that would be more convincing if there were broader signs of the property cycle really lifting.
We had started to become hopeful that the property market was picking up, but transactions have fallen back down again in April. Other indicators for the industrial cycle also look bearish, with output prices weak, and profits still falling.
As widely expected, the BOJ meeting today didn't announce changes in policy. Data releases also showed consistency, with Tokyo inflation in April still accelerating but the labour market in March going sideways.
Business sentiment remains weak enough to suggest BOK cuts, and the fall in consumer inflation expectations indicates some easing of headline inflation pressure. But there's also signs in both surveys of an upturn in the cycle, creating a risk that core inflation won't fall so far.
Decisions about changing the policy framework are interwoven with deciding that there really is a generational shift in inflation occurring. Given the BOJ's history of premature tightening, that requires almost Jedi-like levels of bravery, and we doubt the bank is ready to reach that conclusion yet.
Driven by private consumption, Korea avoided technical recession through March. The strength of consumer spending was a surprise, so we'd assume that downside risks remain. But it isn't clear that today's data will affect the BOK's view of 2H recovery, which is based on the idea of stronger exports.