The platform for tracking and understanding East Asia macro
The upturn in credit growth that began in June last year is continuing. That should be helping to put a floor under nominal growth. But that comes with caveats: private-sector credit lost momentum in February, and while mortgage lending isn't slowing, it doesn't show any sign of a rebound either.
Today's shunto 2025 results are constructive, but not a game changer. Upside risks from other dynamics are bigger: part-time wages, the output gap, inflation expectations, processed food prices, rent, and pent-up inflation pressure in both PPI and public services prices.
There's no change in weak activity, and that even before Trump's reciprocal tariffs. The KRW has been stable, but the warning signs of a rebound in property have been accurate. The direction of policy rates is still down, but household debt issues will once again complicate the outlook for the BOK.
Today's Q1 BOS survey shows the labour market still tight, giving a flavour for the early April Tankan. February PPI inflation eased, but the break with the YoY change in import prices is sustaining. That suggests PPI is being driven by the accumulated rise in import prices since 2021.
A short slidepack covering eight broad themes relevant for the region, from trade to demographics, services to surpluses.
The standout finding from this year's annual corporate survey from the Cabinet Office is the continued rise in nominal growth expectations. The five-year outlook is now almost at 3%. This is another clear sign of a rise in inflation expectations, with real growth expectations not changing at all.
Underlying pay continues to rise around 3% for regular workers and 4.5% for part-time. But bonuses and real wages were lower in January, and consumers continue to complain about rising prices. Household sentiment fell in today's EW survey, and that points to weaker activity in Q1.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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.
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.
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.
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".
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.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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.
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.
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".
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
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.
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.
Today's first estimate of Q4 GDP was strong. The big contribution came from service exports, but the surprise was the resilience of consumption, with the backdrop being another decent rise in real compensation.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
Gone are the days when the monetary data can make a big difference to the market mood. Today's release doesn't turn back the clock: the headline is a bit stronger, but mortgage lending wasn't, and there are distortions from Chinese New Year and definition changes.
The rebound in headline employment in January wasn't broad, with jobs in the private sector remaining weak. With no reversal in the sharp rise in the participation rate of recent years, and the number of part-time jobs still rising, the labour market is likely less tight than headline data suggest.
In LCU terms, there's little to choose between exports in the different economies. But in volumes, China and Taiwan are very strong, and Korea and Japan clearly lagging. This should have implications for CNY, TWD and KRW. For Japan, the significance is for macro if USDJPY turns.