Paul Cavey - East Asia Econ (Page 18)

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East Asia Econ

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Paul Cavey

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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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China – ending of Chinese New Year drags down inflation

A decline in CPI in February was to be expected, given Chinese New Year fell in January, and there are tentative signs of deflation pressure easing. Food prices have stabilised so far in March. And the decline in core in February wasn't enough fully to reverse the strengthening seen since Q4.

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Japan – output gap less negative than it looks

Deputy governor Uchida's speech this week marked the third occasion since January where the bank has argued that the output gap is understated. That suggests more upwards pressure on prices, and thus rates. He also staked out a more positive view of QQE than the BOJ's formal view.

Taiwan – exports strong again in February

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.

Japan – consumption off to a bad start in 2025

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.

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Korea – slowing exports, slowing inflation

Korea's cycle data remain soft, with exports softening again in February. Inflation also eased last month, and with no news yet on the hoped-for supplementary budget, there's nothing new to stand in the way of the BOK's cutting cycle.

China – Japanification scorecard: part 1

A video discussing why China isn't following Japan's path. This is the first part, looking at the seven demand-side factors that caused Japan's problems, and how China compares. The second video will discuss supply-side issues and the "deflationary mindset".

Region – Japan outperforming China services

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.

Korea – exports down in February

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.

Region – monthly cycle slides

Reasons for upside risks in Japan, with implications for BOJ; conviction that China isn't following Japan's 1990s past, meaning rates should be low enough; unlike the BOK, the CBC in Taiwan won't cut rates, and might yet hike again.

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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.

China - PMI details suggest a floor

The PMIs continue to suggest that, overall, there was no lasting improvement in the cycle after the September policy push. There are though some signs that things aren't getting worse any more, with both the construction PMI and employment indicators suggesting a floor.

Taiwan – inflation expectations rising again

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?

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Region – big external surpluses aren't just about trade

Given US policy, the timing of the rise in current account surpluses in Asia in 2024 is bad. But surpluses aren't just about trade. Indeed, an increasing driver is income generated from overseas investments, which give some resilience to surpluses, an underlying support to currencies.

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Korea – BOK cuts, and hopes for fiscal

For the third time since October, the BOK cut rates today. It expects to cut rates further, and although one dynamic affecting the scope and timing will be house prices, the bank also hopes for fiscal policy, which is the one driver it can identify that could serve as an "upside factor for growth".

Japan – SPPI inflation peaking?

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.

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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.

Subscribers Only

Korea – still in a cutting cycle

As it did in January, a BOK cut next week seems likely. Of course, the bank didn't cut in January, so this forecast risks whiplash. But to turn market pricing, the bank would need to indicate an end to loosening, which is unlikely unless it highlights household debt or services inflation.

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Japan – inflation pain

The fundamental inflation story of labour market tightness and wage hikes was seen in today's firm services PMI. But both the PMI and CPI today suggest that dynamic has again been overtaken by prices driven by supply shortages, a phenomenon that is clearly bad for real incomes and so consumption.

Korea – more export underperformance

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.

Taiwan – another sign of shifting supply chains

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.

Region – an illustration of Korea's export problems

This is a shorter thematic note than usual. In the longer piece last week, I didn't come up with a chart that nicely summarised Korea's export challenge. I think I have it now. While Korea is holding on in DM, it is losing market share just about everywhere else, being pushed out largely by China.

Korea – confidence up, prices down

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.

China – less property price deflation, but only just

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.

Japan – solid services Tankan

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.