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Last week, next week
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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Region – less certain export floor
Leading indicators suggest a continued double-digit YoY contraction in regional exports in Q2. Demand remains particularly weak from China, and for tech. China's own export data bucked the regional trend, but that looks too good to be true, not being validated yet by any other data points.
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Japan – core inflation up again
Core inflation accelerated in March. The feed through from the big fall in import price inflation from mid-22 is probably only about to start, so the BOJ's view that headline CPI will ease may still prove correct. But the strength of core makes it tough to argue that there is no domestic inflation.
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China – unconvincing
The sell-side and media consensus seems to be that the GDP data show clear recovery. Investors seem less convinced. We'd guess this reflects data discrepancies which undermine the headline message of recovery, and need to be resolved to have conviction that the cycle is gaining momentum.
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China – consumption, apparently
Detailed GDP data show growth in Q1 being driven by consumption and investment, with zero contribution from net exports. Hospitality grew almost 15% YoY That's not as big a bounce as in 2020, but the base effect is smaller, and indeed, the government has revised up Q422 growth from zero to 0.6% QoQ.
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China – still sluggish
The headline data for Q1 look better, but the details were much weaker. While YoY growth in retail sales rose over 10%, in MoM terms it fell back, with other data showing household income growth in Q1 remaining very weak. At best, the recovery remains fragile.
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Last week, next week
A summary of what happened on East Asia Econ last week, and what to expect next week.
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Taiwan – taking stock
Taiwan's trade data remain weak, and it remains reasonable to think that the industrial sector remains in recession. But wage growth continues to hold up, as does CPI inflation, though neither would be considered high from a global perspective.
Public Post
The China Diviner
Exports in March were so strong, and the trade surplus so big, that we continue to think they must have been boosted by one-off effects. But it is worth asking the implications if that assumption is wrong, because if it is, it would matter for growth, the currency, and protectionism.
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China – property turning up
Chinese property prices rose in March. The increase was modest, but with transactions and mortgage lending also picking up, it is looking more likely that the property cycle really has turned. That in turn improves the prospects for the overall economy.
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China – another puzzle
Exports – and the trade surplus – surged in March to record highs. That is remarkable, and while we need to do more digging, for now, we assume it reflects residual LNY seasonality. If not, it is tough to know how the ROW will cope with China's export competitiveness.
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Korea – employment holding up
The labour market continues to look quite tight. While the unemployment rate was stable, that was because of a rise in participation; employment rose again last month. These data don't give confidence that core inflation will fall.
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China – a bit more positive
China's credit and monetary data for March weren't as strong as earlier in the year, but remained firm. The details, including both the structure of credit and a long-awaited bounce in mortgage lending, were also encouraging.
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Korea – BOK on hold and balanced
In a unanimous decision, the BOK voted to keep rates unchanged in April. The hurdle for another hike from here seems high, but it will depend on the path of core inflation.
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China – no inflation
Inflation slowed again in March. The floor is probably close, but there is no sign of any strong rebound. The risk for the real economy is that real interest rates are rising and so financial conditions tightening. It is likely that the PBC cuts nominal interest rates.
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Japan – gaining momentum
The Economy Watchers and consumer confidence surveys for March suggest Japan's economic recovery is finally gaining momentum. The BOJ will likely have to recognise that at its forthcoming meeting, which will raise market expectations of a shift in YCC.
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Korea – BOK likely still hawkish
We thought some of the pressure to tighten might have come off the BOK by now, but our model instead suggests it remains high. The bank likely wants to assess the impact of previous hikes, so might well leave rates unchanged tomorrow. But it will be difficult for BOK rhetoric to become less hawkish.
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Last week, next week
The East Asia Econ weekly summary.
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Taiwan – industry still weak
Taiwan's industrial sector remains in recession. The PMI in March fell back below 50. The orders:inventory ratio remains soft, and in the separate industrial data, the inventory:shipment through January continued to rise quickly.
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Japan – wage growth stable
Underlying wages are rising by a bit over 1% a year. That is the highest since the 1990s, but doesn't yet show signs of accelerating. That should change in the next few months as the further post-covid normalisation of the hospitality industry increases demand for labour.
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China – some confusion
China's economy is....confusing. There is a recovery, with property sales now lifting. But different indicators show households remain financially cautious. That could just be a timing issue, but until it changes, we would be in turn be cautious about the strength and sustainability of the recovery.
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Japan – the shift to non-manufacturing
The BOJ quarterly Tankan doesn't point to much change in economic momentum. But it does suggest non-manufacturing is on the up, with sentiment, employment and output prices all rising. This is further evidence of inflation broadening, increasing the probability of Japan's real exit from deflation.
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Korea – sticky inflation
Headline CPI inflation slowed in March, but core didn't, continuing to run at around 3.5% annualised. One of the drivers is services inflation, which at the margin has re-accelerated. Updating our BOK model with these and other data suggests the risk of further tightening remains high.
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China – PBC surveys better than expected
The PBC's Q1 surveys paint a mixed picture. We'd continue to expect the government to have to offer more policy support for the recovery. But the overall tone of the surveys is a bit better than we were expecting, and at the margin makes us more comfortable about the outlook.
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Last week, next week
A recap of East Asia Econ over the last seven days, and a reminder of what to watch over the next seven.