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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.
Paul Cavey
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China – no recovery yet
The manufacturing PMI did improve in May, lifted by a bounce in export orders. But there's no sign of a turnaround in the underlying economy, with the construction PMI weak, output prices softening, and business confidence remaining poor.
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China – net export contribution falling in Q2
We don't get many expenditure inputs to estimate components of GDP each quarter. One of the few that is available is net exports, which can be proxied by the change in the monthly balance in goods and services trade. Data today show that remains high, but is now falling YoY, and will dampen Q2 GDP.
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Japan – high CPI, tight labour market, weak spending
Tokyo data show May inflation remaining high. In other releases, unemployment is low and retail sales sluggish. Tokyo CPI dynamics are diverging from national trends, because of the stronger property market. But still, the message for the BOJ is the same: inflation is strong, but growth isn't.
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Japan – mild bounce in consumer confidence
After falling sharply in recent months, there was a modest bounce in consumer confidence in May. The consumer mood may have been given a boost by politicians focusing more on the cost of living crisis. But that crisis remained clear in today's survey, with inflation expectations remaining elevated.
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Korea – rates down again
The BOK cut rates again to 2.5% on the back of further downgrades to the outlook for growth. That forecast makes further cuts likely, though remarks today suggest a sharpening of the debater within the MPC about the need to boost growth versus the risk of rate cuts just pushing up asset prices.
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Korea – business sentiment still weak, BOK still cutting
Despite an improvement in consumer confidence, all-economy sentiment remained weak in May, dragged down by poor confidence in the corporate sector. However, inflation indicators are falling too. Everyone – it seems – expects the BOK to cut tomorrow, and that likely won't be the last in the cycle.
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Region – at last, Korea bucks the trend
In Taiwan and Japan, rising inflation is eroding consumer confidence. In Korea, by contrast, less domestic uncertainty and lower inflation triggered a bounce in confidence in May. The differing inflation pictures offer a good illustration of why the BOK is cutting, while the BOJ and CBC are not.
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China – heavy industry leading profits down
Official industrial earnings show profitability deteriorating again. A rebound would be first seen in rising prices and improving corporate sentiment, neither of which is yet visible. The weakness is concentrated in heavy industry, but profitability in downstream sectors is only flat-lining.
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Japan – SPPI shows solid underlying inflation
Today's services PPI showed solid underlying inflation. However, the recent rebound in CPI has been driven by food prices, and in separate remarks today, governor Ueda sounded more concerned about those. With a meaningful deal on tariffs, further rate hikes would quickly come back onto the table.
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China – accelerating deflation
The recent renewed decline in upstream prices is partly about energy, and so will provide some help to manufacturers. However, in a sign of the continued weakness of construction, building material prices have also dropped, and the acceleration in PPI deflation is rarely a good sign for the cycle.
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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.
Public Post
Korea – PPI following import prices lower
Today's data show that, unlike Japan, Korean PPI is following import prices lower. Unsurprisingly, the big moves in the PPI April report were in energy prices, which fell 7.9% YoY. With the KRW also strengthening, the BOK from here should be able to focus even more on the weakness in growth.
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Japan – headline inflation up, core stable for now
BOJ core rose again in April, boosted by goods, keeping in place the cost of living squeeze that is feeding into declining sentiment. My measure of core services price inflation continues to run a bit under 2%. That's ok, but the drop in sentiment has clearly shifted risks to the downside.
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Taiwan – labour market still tight
After a tick-up in mid-2024, unemployment is back at 3.4%, the lowest in 25 years. In Korea, low UE is offset by big supply-side shifts as the participation rate rises. That isn't happening in Taiwan, so the labour market really is tight, with the big risk being tariffs cause export recession.
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Japan – strong orders, weak sentiment
March machine orders surged, which could be tariff-related, but the strength was in domestic not foreign orders. Anyway, it seems unlikely to last, with today's flash May PMI repeating the downbeat message of the EW, with business confidence "the second-lowest recorded" since 2020.
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Japan – not bad, but still uncertain
Data today don't darken the price- and tariff-driven pessimism painted by the April EW survey. In the May Reuters Tankan, non-manufacturing sentiment was firm, supported in part by record tourist inflows. Manufacturing sentiment didn't drop further, and separately, export volumes for April rose.
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Korea – becoming....East Asian
Historically, in terms of both savings and inflation, Korea has looked different from the other East Asian economies. But that is now changing. In recent years, Korea has become a clear external creditor, and labour market developments warn of a structural slowdown in inflation.
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Korea – no tariff shock yet
After adjusting for days worked, Korea's exports in the first 20 days of May fell YoY for the second consecutive month. But this isn't a tariff shock: in level terms, exports peaked back in mid-2024. If anything, May was a bit stronger, led by a rebound in semiconductor shipments.
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Taiwan – export orders still flying
This year's surge in export orders continued in April, but the drop in the diffusion is warning of a pullback. For the current account, the strength in exports this year has been offset by rising imports and a smaller income surplus. For the TWD, export inflows have been offset by equity outflows.
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China – Q4 pick-up already fading
Headline YoY data are still benefiting from the Q4 pick-up, meaning another 5% growth quarter is likely. But sequentially, growth is slowing again, with no sign of any turnaround in construction that might put a sustainable floor under the overall economy.
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China – still no sign of property momentum
After a clear improvement from September, property price deflation since December has settled at an annualised pace of around -1.5%. Sluggish mortgage lending isn't pointing to a further recovery from here. On these official data, average prices are now down 6% from the peak in 2021.
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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
Japan – details better, but headline GDP already declining
The details of today's GDP release were decent, with capex and consumption per capita ticking up. Ordinarily, those details would matter more than the slight export-driven QoQ decline in GDP. But the fall is worrying, with the recent drop in sentiment surveys warning of a bigger decline ahead.
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Region - uniform falls in import prices, but inflation diverging
YoY import prices are falling everywhere. The implications are mixed. It is contributing to a drop in PPI inflation in Korea, but an intensification of deflation in China. In Japan, meanwhile, PPI inflation remains elevated, supported by the cumulative rise in import prices of recent years.