Asia week ahead: Regional PMI reports and India GDP

Next week features PMI manufacturing data for the region with China’s report on 31 August to set the tone. We expect the recent drought to have reduced power supply, a key component of PMI. Thus we expect another month of PMI staying under 50. Real estate construction should still be slow and pose a drag on non-manufacturing PMI. The good news is that inbound travel gained some momentum, which should offset the drag by the construction sector. Increased activity due to inbound travel for the services sector should be enough to keep non-manufacturing PMI in expansion and above 50.

Meanwhile, in Korea, we expect the July industrial production to improve due to better vehicle manufacturing geared for exports. Gains may be capped however due to some slowdown caused by softer semiconductor demand. Positive developments in industrial production and local business surveys suggest a mild recovery for the manufacturing outlook and PMI is expected to retrace back above the 50 level.

Australian building approvals and construction work done could show how the economy is standing up to the Reserve Bank of Australia’s (RBA) recent rate tightening endeavours, ahead of data on home loan advancement. We also get second-quarter private capital expenditure, which will set the scene for the 2Q22 GDP release on 7 September, just after the next RBA rate meeting on 9 September.

India also releases 2Q22 GDP which should probably show the economy on track to achieve a full-year growth rate of a little above 7%. Deficit figures for July are also due. Data released so far this fiscal year show that India is on track to meet the government’s 6.4% deficit target, though recent commodity price spikes may have taken their toll as the government has absorbed some of the inflation surge to limit pass through to consumers and businesses.

Korea’s headline CPI inflation is expected to moderate in August mostly due to base effects. Gasoline prices continued to decline during the month although fresh food prices surged due to the recent floods.

In Indonesia, headline and core inflation are both expected to head north. Expensive food and utilities are both likely to push headline inflation to 5.3% year-on-year while core inflation could jump to 3.2%. The planned increase in subsidised fuel will likely keep prices elevated in the coming months which could prompt Bank Indonesia to follow up with additional rate hikes at the September and October meetings.

The week also features trade data out from Korea. The August trade deficit should widen as preliminary data reports suggest weak semiconductor exports and low numbers for outbound shipments to China.

Meanwhile, Japan releases data on the labour market and the unemployment rate is expected to be unchanged at 2.6%. High-frequency mobility data improved despite the resurgence of Covid-19 cases which should encourage service sector hiring. Lastly, Japan's July industrial production is expected to increase modestly thanks to the improving global supply chain situation for the automotive industry.