Trade data may provide a test of risks from the global trade war, while inflation continues to be subdued in most Asian economies except the Philippines
A week ago, we noted that so far, there has been scant evidence of a trade war on Asia’s GDP growth. We may start getting some early hints in the April trade figures. Korea is the first economy in Asia, and probably in the world, to report trade data for this month.
Underlying our forecast of a slowdown in Korea’s exports in April- to 0.5% year-on-year from 6.1% in the previous month- is a double whammy of the high base effect and a hit to sentiment from the trade war.
Our main focus will be semiconductors, the backbone of Korea’s exports. An upswing in the global electronics cycle last year boosted semiconductor exports from Korea by a whopping 57% on the year in 2017. The strength continued in 2018 with a 46% rise in the first quarter of the year. However, the recent downgrade of sales forecasts by key chipmakers in Asia and abroad clouds the prospects for continued strength.
But with a significant downgrade to February's manufacturing data, 1Q18 GDP growth is likely to be revised down
Singapore’s industrial production grew in March by 5.9% year-on-year, slightly better than expected. The consensus forecast for March was 5.7%. But there also was a sharp downward revision to February IP growth to 6.7% from 8.9%. The month-on-month (seasonally adjusted) IP growth of 0.3% was barely a clawback of February’s 2.6% fall, which was revised from the initial estimate of a 0.5% fall.
The better March IP reading came despite weak non-oil domestic exports (NODX) in the month, with a 2.7% YoY and 1.8% MoM SA fall. The saving grace was a sizable month-on-month bounce in pharmaceutical and precision engineering output, both up 40%, and in marine/offshore engineering and miscellaneous manufacturing, each up 27%.
The 10% MoM growth in semiconductor output was a recovery from a 16% crash in February. Unlike Korea and to a smaller extent Taiwan whose semiconductor exports held up well in the first quarter of 2018 (up 45% and 10% YoY, respectively), Singapore’s semiconductor exports contracted about 10% from a year ago. The prospects are clouded by the recent downgrade of sales revenue forecasts by key chipmakers in Asia and abroad.
March IP data indicates a slight downward revision of GDP growth in the first quarter. As per the advance estimate released earlier this month, GDP grew by 4.3% YoY in 1Q18. Based on today’s data, we estimate a revision to 4.2%.
Having briefly dabbled with a US Treasury yield above 3% intraday earlier this week, markets can't seem to pluck up the courage to take the plunge more decisively - we may not have long to wait...