15 January 2019
ASEAN morning bytes

General market tone: Risk-off.

Expectations for lackluster earnings coupled with disappointing Chinese trade data reported to keep a lid on risk sentiment.

International theme: Trump hopeful for a deal with China

  • President Trump's remarks that “we are going to be able to do a deal with China” raise hope for some progress on the trade front even as his standoff with the Democrats continues.
Philippines country brief: 2019 to be a tale of two halves

The Philippine economy has seen strong growth momentum in recent years but will likely hit a speed bump in the first half of 2019. However, decelerating inflation and possible easing from the Bangko Sentral ng Pilipinas (BSP) could help restore some lost growth momentum to close out the year

Recent Growth and outlook: Robust but speed bumps ahead

The Philippines continued to post growth above 6% as of the 3Q of 2018 with year-to-date growth at roughly 6.3% and almost all sectors of the economy contributing to that figure. In the past, the economy was heavily reliant on household consumption but in recent years we’ve seen a steady contribution from both capital formation and government spending as well. On the other hand, net exports have continued to act as a drag on economic growth as the Philippines runs a chronic trade deficit. This has become more pronounced in recent months with imports surging at a time when exports have struggled.   

Growth, however, is expected to hit a speedbump in the next two quarters with still-elevated levels of inflation and higher borrowing expected to sap both consumption and investment momentum somewhat. Meanwhile, government spending may decelerate sharply as the administration is running on a re-enacted budget following Congress’s failure to pass the 2019 spending plan. 

China: exports and imports contracted in December

China's exports and imports contracted in December 2018. This is likely to continue into 2019 due to falling foreign demand, including demand for Chinese-made electronic products.

Shrinking exports and imports in December - especially in the electronic sector

China's exports and imports shrank 4.4%YoY and 7.6%YoY in December 2018, respectively, which was considerably down from our already downbeat forecasts of +2.5%YoY and 0.0%YoY, respectively. 

Exports fell for commodity energy goods like coal and crude oil. But there were also declines in some electronic related parts and goods and auto-related parts.

It was a similar story for imports, but with even greater reductions in electronic-related parts and goods.

Trade of electronics will continue to shrink

We believe that the fall in electronic imports and exports is related to the lack of demand for upgrading smartphones, and also the start of foreign companies avoiding using China-made electronic components.

With regard to the possible shunning of China-made electronics by foreign firms, China could rely more on domestic demand as external demand fades. But exports and imports of electronic parts and goods will still likely continue to shrink in 2019.

2018 trade balance signals solid consumption growth

For the full year, exports and imports rose by 9.9% and 15.8% in 2018 respectively, which resulted in an annual trade surplus of $351.8 billion. This was down from $509.7 billion in 2017, due to faster growth of imports relative to exports. The 31% decline in the trade balance also implies that China's consumption growth was reasonably solid in 2018.

Global growth in the first part of 2018 grew faster than expected, especially in the US, which boosted China's exports and imports (imports from inputs for subsequent export).

However, we doubt the same can be repeated in 2019. The US will likely experience a slowdown later in the year due to a combination of weakening fiscal stimulus and higher prices of inputs stemming from tariffs. The government shutdown does not help matters currently, but it is hard to see this persisting beyond the immediate future. Major European countries are also struggling to maintain growth and combined with a weaker US, provides a challenging external demand backdrop for China's exports in 2019.

Reading time around 3 minutes

Good MornING Asia - 15 January 2019

Yesterday's Chinese trade data provided a reality check to those who have been peddling a more upbeat trade story on the back of US-China talks. Current tariffs are already doing considerable damage, and merely not adding to that burden will not deliver a turnaround. Indonesian trade data due today will likely show how this is affecting Asia more broadly. 

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