We had more mixed news out of Asia yesterday.
China’s trade account dipped into the red in February (see separate story), Japan’s economy slowed by a bit more than forecast in the second estimate of 4th quarter growth, while South Korea joined Thailand in lifting official rates.
Both countries lifted rates in response to quickening inflation, and South Korea seems now to be behind the curve on tightening monetary policy.
The news came as New Zealand cut its official rate to relieve pressure on an economy whacked by the two earthquakes in Christchurch last September and last month (see separate story).
Japan’s economy contracted more than the government initially estimated last month in the fourth quarter, because of a fall in the growth rate of capital investment and a bigger drop in consumer spending.
The government said Gross Domestic Product shrank at an annual rate of 1.3% (around 0.3% quarter on quarter) in the December three months, up from the 1.1% contraction in the first report in February.
Despite the new figure, Japan’s economy grew by 3.9% in 2010.
But while this was a disappointment for the struggling government, the flow of other data since December suggests the economy has bounced back into positive growth this quarter.
Machine orders, industrial production, unemployment and exports have improved, imports are growing strongly (even taking into account price rises) and deflation seems to be still easing.
Private consumption drove GDP lower in the fourth quarter after the government ended a subsidy program to buy fuel- efficient cars in September and reduced incentives to purchase electronic home appliances in December, a program that will end this month.
In fact private consumption fell by a revised 0.8%, worse than the initial estimate for a 0.7% fall.
Capital spending rose a revised 0.5%, compared with a preliminary reading of a 0.9% increase.
And South Korea raised official interest rates yesterday, joining Thailand which boosted its rates the day before.
The Bank of Korea lifted its main interest rate by a quarter of a percentage point to 3%, a move many in business thought long overdue after the bank sat pat in February in the face of rising costs.
Inflation in Korea is currently running at 4.5% and the country faces higher consumer prices because of rising food and oil prices.
South Korea’s industrial production grew 13.7% year on year in January, up from a revised 10.6% gain in December.
Production rose a strong 4.6% month on month, boosted by strong export demand in the month.
On Wednesday, the Bank of Thailand lifted its key rate from 2.25% to 2.5%, the fifth rise since July of last year.
Consumer prices in Thailand are being kept in check by government subsidies on oil and some staple food items, but inflation still hit 2.9% in February.
The government has said it will continue to subsidise the price of diesel until the end of April and expand its guarantee scheme for rice prices.
However analysts have warned that this is only a temporary solution to keep prices in check.
South Korea is one of Australia’s top five export markets and a major source of imports, as is Thailand where cars and car parts have become the major export into Australia.
