Asia week ahead: Data calendar busy with manufacturing, inflation and GDP reports

China’s manufacturing Purchasing Managers' Index (PMI) should show a slight contraction as the Chinese New Year in February means a short month for factories. But the non-manufacturing PMI is likely to show some mild growth from consumption activity during the holiday. Likewise, Korea’s manufacturing PMI is expected to edge down marginally. Local surveys suggest a better outlook, but we think it is likely to take a breather after a four-month string of expansions. Indonesia’s PMI report should show activity slowed as the country dealt with a fresh wave of Covid.

On the other hand, India and the Philippines could see some improvements in manufacturing activity following the decline in Covid cases in their respective countries. The latest Covid outbreak led to the reimplementation of some movement restrictions that are subsequently in the process of being wound back. Less stringent curbs should translate to more mobility and improved PMI numbers for both India and the Philippines.

Inflation readings out in the coming days all point to a pickup in price pressures. Inflation in both Indonesia and the Philippines should tick higher given elevated energy prices and improving domestic demand. Likewise, Korea’s inflation will also likely rise further on the back of higher commodity prices and a weak Korean won. In the coming months, price pressures are likely to fan inflation to levels that could prod Bank Indonesia, Bangko Sentral ng Pilipinas and Bank of Korea to consider tightening.

Australia’s 4Q21 gross domestic product (GDP) should show some continued improvement in economic activity as movement restrictions have been further reduced. This should provide a boost to economic activity – especially to the service sector.

Meanwhile, India’s 4Q21 GDP could come in a bit below the 6.1% year-on-year consensus forecast, and isn’t helped by an unfavourable base comparison with 4Q20. The underlying quarter-on-quarter rate of growth is, however, showing strong momentum which should help deliver decent growth in 2022. We are forecasting 7.7% GDP growth for the calendar year 2022.

The Reserve Bank of Australia (RBA) will hold its policy cash rate target at 0.1% at its March meeting. Wages growth, which is the only missing criterion standing in the way of a rate hike, came in at 2.3% year-on-year in 4Q21. This is lower than the 3% rate which would be consistent with sustained inflation in the RBA’s 2-3% target range. Despite the tightness of the labour market, this has not yet trickled through substantially to wages growth. The RBA’s 3% threshold for wages may not be met until the 2Q22 wage figures are released in the second half of the year.

China’s Two Sessions starts on 4 March, while the government work report should be released on 5 March. We expect a GDP target of 6% or above to be set for 2022. The main theme should be stability, which implies more pro-growth policies to offset the damage from the continuing deleveraging reform on the real estate sector.

Next week’s calendar also features Korean exports which are expected to accelerate in February as signalled by the 20-day trade figures and positive business surveys. The trade balance is likely to return to a surplus. Lastly, we will also be getting Japan’s industrial production, retail sales and unemployment reports which could show some impact from the recent spike in Covid cases.