In our final Charts of the Week publication for 2023, we turn our attention to 2024, and highlight twelve themes that are poised to influence the economic and financial market landscape in the year ahead. These include several cyclical themes that concern, for instance, inflation, monetary and fiscal policy settings (see charts 1 to 4). The outlook for China’s economy and India’s economy could also remain significant (charts 5 and 6). We then turn our gaze to more structural matters such as the advance of AI (chart 7) and ageing demographics (chart 8). Politics, however, will also be critical next year with more than half of the world’s population destined to vote in elections, including of course the US (chart 9). The latter, in turn, though could have profound implications for trade (chart 10) and geopolitical stability (chart 11). Our final theme is climate change and the energy transition which will also never remain too far from the headlines (chart 12).
Introducing
Tian Yong Woon
in:Our Authors
Tian Yong joined Haver Analytics as an Economist in 2023. Previously, Tian Yong worked as an Economist with Deutsche Bank, covering Emerging Asian economies while also writing on thematic issues within the broader Asia region. Prior to his work with Deutsche Bank, he worked as an Economic Analyst with the International Monetary Fund, where he contributed to Article IV consultations with Singapore and Malaysia, and to the regular surveillance of financial stability issues in the Asia Pacific region.
Tian Yong holds a Master of Science in Quantitative Finance from the Singapore Management University, and a Bachelor of Science in Banking and Finance from the University of London.
Publications by Tian Yong Woon
Global| Dec 11 2023Charts of the Week: Twelve Themes for the Year Ahead
Asia| Dec 04 2023Economic Letter From Asia: The Year in Review
In this week’s letter, we take the opportunity to reflect on the year, with a focus on key developments in the Asia Pacific region. We note that regional disinflation has finally materialized, aided by a decline in energy prices and as cumulative effects of past monetary tightening take hold. Further, we take stock of monetary policy in the region, with one camp of central banks potentially having concluded their tightening cycles, while another camp keeps policy easy, due to less-than-ideal economic conditions at home. Next, we evaluate regional currency performance, and with a nod to effects from monetary policy. We give a nod to equities in the region as well, noting however the headwinds that continue to drag on returns. We also examine shifting trade dynamics between China and other Asian Pacific economies, acknowledging continued export woes in South Korea, and increased shipments by Australia and Vietnam. Lastly, we delve into the state of tourism in the region, acknowledging the enduring gap left by Chinese tourists who have not returned and the measures being taken by regional governments to encourage their comeback.
Inflation developments Headline inflation in the Asia Pacific region cooled rapidly in early 2023, partly due to a sharp drop in energy prices (chart 1), while tighter monetary conditions weighed on domestic demand in some economies. Notably, both China and Thailand recorded their first post-pandemic deflation readings in July and October, respectively. Thailand’s headline inflation was dragged lower additionally by recent measures enacted by the new government, aimed at lowering living costs via diesel tax cuts, reduced electricity bills, and similar measures. However, apart from China and Thailand, relatively high headline inflation rates persist in the Philippines, India, Australia, and Singapore, despite easing price pressures. In the third quarter, there was a resurgence in inflation due to a rebound in crude oil prices, although a subsequent price correction suggests that these inflationary pressures may soon subside.
Asia| Nov 13 2023Economic Letter from Asia: Examining Indonesia
We move our attention this week to Indonesia, in light of its Q3 GDP readings released last week. The resource-rich economy is the largest in Southeast Asia and the fifth-largest in Asia by GDP, providing the bulk of the world’s nickel and palm oil supplies. Indonesia is also an important producer of other base metal and agricultural products including tin and natural rubber, and of energy commodities like coal. While slightly weaker, Indonesia’s Q3 GDP growth hovered near pre-pandemic rates, with private consumption once again the main growth driver. Delving deeper, we note continued weakness in Indonesia’s exports, which have been weighed by soft export prices despite relatively steady demand volumes. We then turn to examine Indonesia’s position as a minerals producer and its efforts – including outright export bans – to ascend the global minerals value chain. We next take stock of recent developments with the Indonesian rupiah and its relative resilience against the US dollar, noting stabilization support from the central bank. Lastly, we dive into the bank’s newly minted monetary policy tool aimed at attracting foreign inflows and discuss preliminary market responses and results.
Indonesia’s Q3 performance Indonesia experienced slightly slower GDP growth in Q3, of 4.9% y/y, registering its first sub-5% growth reading in seven quarters (chart 1). The main support for Indonesia’s Q3 GDP growth stemmed from private consumption and gross capital formation, which collectively contributed to 4.7 percentage points of growth. Also, net exports provided a slight lift to growth, while government consumption exerted a mild drag.
Asia| Nov 06 2023Economic Letter from Asia: Investor Inclinations
In this week’s letter we focus on recent investor behaviors concerning Asia. We note the recent exodus of investor funds from the region, driven largely by outflows from Mainland China amid lingering uncertainties. We also examine investor pivots toward other areas in the region, including India and Vietnam, and note the distinct pull factors of those economies. India has become an increasingly attractive investment destination for portfolio flows, with opportunities supported by a relatively stable rupee and a still-positive yield spread over the United States. Vietnam continues to draw investment flows from all over the world, spurred by its manufacturing infrastructure and comparatively low labor costs. Finally, we give a nod to the latest yield developments in Japan, following the central bank’s decision last week to officially demarcate 1% as the upper 10-year yield limit.
Foreign portfolio equity flows Foreign investors unwound about $15.6 billion of equity positions in Asia over September, after having already sold $20.2 billion of assets in August (chart 1). Almost all of the recent equity divestments are of Mainland China assets, with significant moves out of Taiwan and South Korea seen too. The selloffs come in contrast to the optimism displayed earlier this year when the major investment thesis for emerging Asia was about maximizing exposure to China’s reopening. Now, we have seen such optimism fade, with investors increasingly turning to other pockets of opportunity, such as India and Vietnam.
Asia| Oct 30 2023Economic Letter from Asia: Korean Considerations
This week we turn our attention to South Korea after it revealed an improved economic outturn for Q3 just last week. The economy’s rebound was driven in large part by its semiconductor industry as global chip demand recovered some poise over the period. With that said, while the latest news offers some headline reprieve to South Korea watchers, underlying domestic issues persist. In particular, the indebtedness of South Korean households flags continued reason for concern, as mortgage loans surged following the introduction of 50-year loans in July. The fragility of the situation is further underscored by households’ significant floating-rate loan exposures amid a high-interest rate environment, with delinquency rates already rising in recent months. Against this backdrop, we also discuss the challenges faced by the Bank of Korea. With that said, it seems likely that the central bank keep rates higher for longer, for now, until the data justifies otherwise.
South Korea’s Q3 performance South Korea enjoyed an encouraging turnaround in economic performance in Q3, following three prior quarters of slowing growth. South Korea’s GDP growth rose to 1.4% y/y from 0.9% in Q2 (chart 1), driven by trade, as export growth improved while imports steadied from previous declines. In contrast, growth contributions from private and public consumption were only modest, while capital formation exerted a mild drag.
Asia| Oct 23 2023Economic Letter from Asia: Some Light on China
We shift our focus back on China in light of last week’s Q3 GDP print and monthly readings for September. That latest flurry of data releases has spurred further hope that the Chinese economy has entered a stabilization phase, following a protracted period of underwhelming growth. There is still reason for caution, however, given persistent weakness in the property sector, among other economic drags. Also, continued reliance on fiscal stimulus via local government infrastructure spending warrants continued monitoring, given how this spending is straining China’s debt arithmetic. Furthermore, there is the added financial stability concern arising from growing off-balance sheet local government debt, although we have already seen some regions beginning to address such problems. All told, while the stabilization in the economy is encouraging and may bring positive spillovers if sustained, property sector woes and signs of increasing indebtedness justify some unease.
Asia| Oct 16 2023Economic Letter from Asia: On El Niño
This week we turn to ongoing El Niño climate conditions and resulting implications for food prices and policy responses in Asia. El Niño effects have already started to depress crop yields in the region, with major producers such as India reeling from poor rice harvests. Consequent food shortages have exacerbated inflationary pressures in Asia, presenting renewed problems for authorities. Regional governments have responded with a range of measures, from price caps to import subsidies and even outright export bans. The scope for a major response from many governments in the region is limited however by the lack of fiscal policy space. Stimulus programs that were enacted during the pandemic have led to ballooning government deficits and debt in a number of economies in recent years. However, central banks face their own set of challenges too. By tightening monetary policy again to fend off renewed inflation challenges they could further tighten financial conditions, from already restrictive territory, and thereby hasten the onset of recessions.
Asia| Oct 09 2023Economic Letter from Asia: Japan Musings
In this week’s letter, we focus on Japan. Investor interest is acute because of the impact of a potential normalization of Japan’s monetary policy, the timing of which is still uncertain. Specifically, we look at recent trends in Japan’s business climate, inflation, and wage growth. We find that while business climate has improved in Japan, wage growth continues to lag inflation, inherently dragging on the Bank of Japan’s (BoJ) desire to see income-led consumption. We also examine Japan’s extensive overseas asset holdings and explore the potential impact on these holdings brought about by tighter monetary policy by the BoJ. We find that while Japan’s investors have been rebuilding their foreign bond holdings over the past year, much of these holdings stand to be unwound should yields at home climb.
Asia| Oct 02 2023Economic Letter from Asia: Some Perspectives on China
China watchers saw reason for some cautious optimism lately, as economic data for August showed signs of growth stabilization. Retail sales and industrial production expanded at a brisker pace, while trade registered reduced rates of decline. Growth in fixed asset investment, however, continued to slow. Additionally, China’s latest PMI readings for September were a mixed bag, as official readings indicated some pick up in non-manufacturing activity, while the Caixin gauge signaled slower growth in both manufacturing and services. Looking further back, China’s GDP growth in Q2 fell short of expectations, as a much-hyped post-pandemic rebound disappointed. Instead, the Q2 growth reading was supported by low base effects from a year ago, during which China enforced strict pandemic-related lockdowns. Regardless, China’s growth for the year has been predominantly consumption-led, while trade acted as a mild drag (chart 1).
Asia| Sep 25 2023Economic Letter from Asia: Some Food for Thought
Investor sentiment has come under pressure following some messaging from the Fed last week to suggest that US interest rates could likely stay higher for longer. As expected, however, Asia’s central banks have held their policy rates steady over the past few days. Additionally, the Bank of Japan (BoJ) left its Yield Curve Control (YCC) parameters unchanged. Meanwhile, in China, banks retained 1-year and 5-year loan prime rates (LPRs) at 3.45% and 4.2%, respectively.
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