More weak economic data from two of Asia’s major economies (and major Australian export markets) in Japan and South Korea. The news adds to the sense that with China, the engines of Asia have started 2015 on a decidedly weaker note, with no sign of any improvement on the horizon.
But despite the gloom from China in recent weeks, the Shanghai market yesterday added 2.6%, and closed at a seven year high.
Together the three economies take the majority of our key exports, such as iron ore, coal, oil and gas, metals and rural products.
The iron ore, coal and energy exports have been badly hit, adding to pressures on the Australian economy and putting further downward pressure on our terms of trade and national income.
Japan’s industrial output fell in February at the fastest pace in eight months thanks to lower output of key domestic and export products in the machinery, cars and electronics sectors.
It is a further sign that the government’s ambitious policies aimed at dragging Japan out of its deflationary rut remains unfulfilled and facing rising pressures.
The Japanese government said industrial production fell 3.4% in February, much steeper than forecasts for a 1.9% fall. This brings the year-on-year loss to minus 2.6%, worse than forecasts at minus 0.6%.
The government forecasts production to fall 2% in March (that will be reported in a month’s time) and then rebound 2% in April.
In four of the past five months, Japanese industrial output has been lower than a year ago, despite the government’s three-pronged plan to stimulate the economy and initiate a wave of reforms.
Japan’s output slumps in February
The weak data follows data on Friday that showed household consumption and retail sales each struggling, while year-on-year core inflation fell to zero and will probably slip into deflation in the next couple of months.
Economists say it’s a further worry that the Japanese economy is sleepwalking at the moment as it continues to struggle from the impact of last year’s tax rise and weakening activity in the rest of Asia.
The Bank of Japan releases its quarterly survey of business sentiment on Wednesday (called the Tankan) which should give us an update on the way businesses, especially large and medium, see the coming year in terms of demand, investment and sales.
This Tankan is especially important because it’s released on the first day of the new Japanese financial year, and a year to the day when the sales tax was raised to 8% from 5% and flattened the economy.
While export demand from major markets like Europe and the US seems to be picking up, it’s about the only positive for the Japanese economy at the moment.
In South Korea, fresh from a surprise rate cut by the central bank two weeks ago, business conditions for the coming month have weakened, according to the monthly survey of the country’s manufacturing sector from the Bank of Korea.
The Bank’s manufacturing business survey index for April fell to a seasonally adjusted reading of 76, from 79 for March. But that was higher than the reading for February.
The index has remained below the reading of 100 since reaching 101 in January 2011, which indicates companies that expect business conditions to deteriorate outnumber those which see improvement.
Poor domestic demand and an uncertain business outlook continued to sit at the top of the list of manufacturers’ concerns, the survey showed.
Unemployment has risen to an 11 month high and the government has downgraded its GDP forecasts for the coming year to 3.4% from 3.8% last December and 4% in July. Inflation is slowing (as in Japan) because of weak energy prices and government stimulus spending is not having much of an impact.
Data released last Friday show that Japanese household consumption was down 2.9%in February than a year ago, while retail sales were down 1.8%.
Big Japanese firms have lifted wages for their unionised work forces, and with no inflation there could be a sharp improvement in real wage growth in the coming year, which could spark a rebound in household spending and retail sales.
And in China, stockmarket rebounded yesterday after the People’s Bank of China strongly hinted at imminent support for the world’s second largest economy.
PBoC Governor Zhou Xiaochuan said on Sunday that policy-makers would have to be "vigilant" against the risk of disinflation. “China can have room to act," he said at the Boao Forum for Asia.
The bank has already cut rates twice since last November and lowered the bank reserve ratios twice as well. Both those moves have yet to have any real impact on economic activity which has softened noticeably in the first quarter.
And last night the country’s central bank cut the size of the mandatory deposit on a second home from 60% to 40%, saying it wanted to help consumers.
It was only 18 months ago that the deposit was raised because Chinese home owners were busy buying second and third houses (as a form of speculation, or in rare cases, saving).
