Asia week ahead: Fine-tuning 2Q GDP growth estimates
June activity releases will help us to fine-tune 2Q19 growth estimate for Asian economies. With downside growth risks persisting and inflation remaining low, the need for greater policy support will keep regional central banks on their toes
Intensified export-led slowdown
June trade and manufacturing figures are highlights of the Asian economic calendar for next week. Trade figures, and within that exports matter for manufacturing growth, which in turn drive GDP growth. We have seen accelerated export weakness coming through some Asian countries with electronic heavy-weights Korea and Singapore leading the pack.
A slightly positive turnaround in Taiwan’s exports was a hopeful sign of recovery, though hopes are misplaced with the trade tensions between the US and China, and now between Japan and Korea, remaining elevated. As such, the balance of risk is tilted towards further export and manufacturing weakness across the region. Look out for trade data from Hong Kong and Thailand, and Taiwan’s export order figures next week.
Asia: At the forefront of the global tech slump
More downside growth risk
Taiwan also reports industrial production figures for June. The average industrial production growth for three months will help us to assess the risk to our 1.4% GDP growth forecast for 2Q19 (data due on 31 July). Likewise, Singapore’s industrial production growth for June will indicate the likely direction of revision to 0.1% year-on-year GDP growth released as part of the advance estimate earlier this month (final estimate due in mid-August).
Korea’s preliminary GDP data for 2Q19 will test our view that sharp export declines recently have pushed the economy close to a recession. The Bank of Korea’s 25bp policy rate cut today probably heralds a worse growth figure. GDP shrank by 0.4% quarter-on-quarter (seasonally adjusted) in 1Q19. Another such negative print will confirm a (technical) recession. The trade rift with Japan dampens the export outlook, so, a couple more BoK rate cuts by the end of the year won’t be an unreasonable view.
Korea: Growth, inflation, and central bank policy rate
And subdued inflation
Lately, inflation releases have been largely uninteresting drivers for the markets. We don’t think next week’s CPI data for June due in Hong Kong, Singapore, and Malaysia will be any different.
Yet, there is likely to be some interest in Malaysia’s CPI as the Goods and Services Tax (GST) elimination in June 2018 moved out of the base comparison and likely caused a spike in the year-over-year inflation rate from the near-zero level it had been in the first five months of 2019. On the flip-side, we believe low global crude oil prices drove domestic fuel prices lower and this prevented a sharp rise in headline inflation. Our forecast is 1.1% YoY, up from 0.2% in May. That said, we see average annual inflation in 2019 staying close to the low end of Malaysia’s central bank 0.7-1.7% forecast range.
Malaysia: Falling fuel prices keep CPI inflation low
Asia Economic Calendar
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