Welcome to EAST ASIA ECON, a research service run from Taipei by Paul Cavey, and specializing in the markets and macro of China, Japan, Korea, and Taiwan.
We cover all the major data releases, as well as providing weekly and monthly summaries. We also devote a lot of time to thematic work, aiming to understand development patterns across the region, and to find common investment themes.
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Cyclically, credit is very weak, especially private sector borrowing. But credit is still rising relative to GDP. That's partly because of government borrowing. But it is also because of weak nominal GDP growth, and that is unlikely to change until the sharp fall in M1 relative to M2 reverses.
Exports dropped quite sharply in September. China is still making share gains in autos especially, but this is another sign that the best of the recovery in the regional export cycle is probably now done. That matters for China when exports have been the strongest sector of the economy.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Core inflation, which took one step-down during covid, has this year dropped again. Indeed, China has now been in sequential core CPI deflation since May. This implies rising real interest rates, and, with PPI turning down again too, a worsening debt burden.
As expected, the BOK's cut on Friday was hawkish. However, while I thought the bank would express some concern about services inflation, its only worry seems to be that lower rates will give a new boost to real estate. If housing is calm, the consensus will thus expect rates to fall further.
There was a decent bounce in per capita household incomes through Q2. But the rise in consumption was smaller, with better incomes fuelling stronger savings rather than much more spending. The Q2 BOJ consumer survey shows the big worry at the household level remains the high level of prices.
The MOF presser today was underwhelming, in both quantity and quality. The one real, positive change is allowing fiscal funds to be used to address the supply overhang in property, but only at the local government level (and, it seems, using existing funds). Markets are unlikely to be impressed.
There is a broad consensus that the BOK will cut this Friday. I wouldn't push back strongly against that expectation. But I don't think the bank can be too doveish when private services inflation – a proxy for domestically generated inflation – has been rebounding back above 2%.
Data continue to show little change in the constructive economic assessment that the BOJ was talking about in 1H24. The Economy Watchers survey for September ticked down, but is well above the LT average, and the outlook score is higher still. Growth in underlying wages remains firm.
My base case - that the economy won't turnaround without fiscal – isn't especially differentiated. But the reports of stronger real estate sales in the holiday highlight a risk case: that the equity rally mobilises household savings and boosts price expectations, lifting the economy without fiscal.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
I had an op-ed piece in today's Nikkei Asia. The headline argument is that monetary policy isn't sufficient to boost growth. On its own, that isn't much of a differentiated view. The nuance is the reasoning: China has monetary policy independence, so Fed cuts in themselves don't change anything.