Economy in Brief

In this week’s letter, we dive into some of the key themes relating to the ASEAN-5 region, including topics on inflation, monetary policy, tourism, trade, and global value chains. For clarity, we define ASEAN-5 economies to comprise Indonesia, Malaysia, Singapore, Thailand, and the Philippines. We note that while inflation has moderated in the region, developments at the country level have been uneven. We also take stock of recent monetary policy trends noting that the region’s central banks seem likely to hold policy rates steady until inflation cools further. Next, we examine tourism, acknowledging the absence of a strong recovery in Chinese tourist arrivals amidst persistent economic troubles at home. We next move to trade, noting the interim stabilization of the region’s exports and explore recent developments in the region’s trade relationship with China. Lastly, we take stock of the region’s standing in global value chains, by examining the value they add to their exports. Also included in the last segment is a nod to the slew of government initiatives aimed at catapulting their respective economies toward innovation and new technologies.

Inflation Headline CPI inflation has cooled significantly in ASEAN-5 economies over the past year on average (chart 1), as food and energy price pressures eased. Average headline ASEAN-5 inflation has fallen to 2.3% y/y in November 2023, from a peak of 6.2% in September 2022. Meanwhile, average core ASEAN-5 inflation moderated to 2.1%, after having peaked at 3.7% in January 2023. Delving deeper, however, we find that progress on disinflation has been uneven across the ASEAN-5 economies. For instance, headline inflation in the Philippines remained comparatively high at 4% in December 2023 despite having cooled from its peak of 8.7% in January 2023. In contrast, Thailand remained in deflation for a third straight month in December 2023, with prices having fallen 0.8% y/y for the period. Nonetheless, price pressures in ASEAN-5 as a whole are likely to be suppressed further if current monetary policy settings are maintained. With that said, inflation risks remain. For one, near-term supply-side bottlenecks induced by regional conflicts (e.g., Russia-Ukraine, Israel-Hamas) may exert external-led price pressures. Also, an eventual rebound in domestic demand in ASEAN-5 may add to domestic inflationary pressures.

U.K. retail sales fell by 3.6% in December after rising 1.1% in November and rising modestly in October. The progression of nominal retail sales growth shows sales up by 0.5% over 12 months, falling at a 5.2% annual rate over six months and falling at a 9.3% annual rate over three months. On a sequential basis, retail sales have been falling at an accelerating pace. Over the sequential basis as well, The CPI-H in the U.K. rose 4.2% over 12 months, decelerated to a 2.2% annual rate over six months, and then crept higher by 0.9% at an annual rate over three months completing the deceleration cycle. Inflation gave sales a positive push over each of these horizons but a sequentially smaller push from 12-months, to six-months, to three-months.

Sales volumes- Not surprisingly these conditions have led to weakness and declines in real retail sales, which we can also refer to as retail sales volume. Retail volumes fell by 3.3% in December, after rising by 1.5% in November, and falling by 0.1% in October. Sequentially, the progression of retail sales is weakening as retail volumes fell by 2.5% over 12 months, then fell at a 7.2% annual rate over six months, and then fell at a faster 7.7% annual rate over three months.

Passenger car registrations- In addition to weakness in retail volumes, passenger car registrations have fallen in each of the last three months; sequentially, passenger car sales are getting much weaker. Passenger car registrations year-over-year are up by 9%, but over six months they're falling at a 2.8% annual rate, and over three months registrations are falling at a 21.4% annual rate. This is substantial and growing weakness in passenger car registrations implying also significant weakness in sales.

U.K. retail surveys- In addition to these statistics on actual retail and car sales, we can look at a few the surveys on the U.K. economy. The Confederation of British Industry (CBI) metric for sales this time of year fell by 9 points in December, after falling six points in November, and falling 15 points in October. The CBI survey for the volume of orders year-over-year fell by 32 points in December after rising by 15 points in November and falling by 18 points in October. GfK consumer confidence survey rose by two points in December after rising 6 points in November and falling by 9 points in October.

Sequential performance of surveys- Next we can track these survey metrics sequentially from 12-months to six-months to three-months. The CBI survey for retail sales for ‘time of year,’ essentially a seasonally adjusted concept, shows growing weakness. The survey drops 22 points over 12-months, logs a drop of 26 points over six months, and a drop of 30 points over three months. The CBI survey for the volume of orders, looking at the year-over-year changes, also shows persistent negative numbers with a decline of 33 points over 12 months, a decline of 44 points over six months, and then a substantial decline of 35 points over three months. The GfK confidence survey rises by 20 points over 12 months but then gains just two points over six months, and falls by one point over three months. The surveys reinforces the idea of sales being on a weakening trend and being currently under downward pressure.

Quarter-to-date- These statistics are for December and complete the data for quarter; The quarter-to-date U.K. retail sales change fell by 0.9%, but sales volumes fell more sharply, at an annual rate of 3.5%. Passenger car registrations fell at an annual rate of 17.3%. The CBI survey for retail sales for the time of year is 15.3 points weaker than it was in the third quarter; the survey for the volume of orders year-over-year is weaker by 6 points than it was in the third quarter; the GfK consumer confidence index is unchanged on the quarter compared to the one quarter ago average.

Percentile standings- As a final evaluation we can rank sales growth historically and on data back to 2002. When we do this, the ranking of the U.K. sales rate is in its lower 10th percentile; retail volume is also weak, in its lower 9.7 percentile, about the same relative standing as for nominal retail sales. Passenger car registrations year-over-year still carry a relatively high-ranking in their 77.8 percentile, but registrations are weakening sequentially, so this ranking is under downward pressure. The ranking the levels of the CBI surveys show retail sales for the time of year with the 17.1 percentile standing, CBI order volume growth year-over-year is at an anemic 1.6% standing, and the GfK consumer confidence index at a 30.4 percentile standing.

Industrial production in Japan fell by 1.3% in November; manufacturing alone also saw industrial production falling by 1.3% in November. For total industry, production is accelerating as 12-month growth is falling by 1.2%, but growth over six months rises at a 3.7% annual rate, and growth over three months rises at a 4.3% annual rate. For manufacturing, it's almost the same picture with output down by 1.3% over 12 months, but then the annual rate of expansion jumps to 5.6% over six months, but subsequently backtracks slightly to a 5.2% annual rate over three months. The picture from manufacturing is really the same for total industry except for some decimal points; it shows that manufacturing output goes from declining over 12 months to expanding at a strong pace over three months and six months.

The strengthening trend in output is not reflected in each of the three main manufacturing sectors of consumer goods, intermediate goods, and investment goods. Consumer goods do show a general improvement. There is a rebound with growth of 1.8% over 12 months, jumping strongly to rise 15.7% at an annual rate over three months. But the in-between measure, over six months, has industrial production falling at a 4.7% annual rate. Still, the bottom line for consumer goods output is that output has accelerated over three months compared to 12 months. For intermediate goods, there's an accelerating progression as growth falls by 0.8% over 12 months, advances at a 5.2% annual rate over six months, and then accelerates further to a 6% annual rate over three months. Investment goods go in the opposite direction. The sector does not quite stand up to become a sequential deceleration, but it's close to that with output falling by 5.4% over 12 months, then output falls, at a very elevated -15.9% annual rate over six months, then the decline slows but it is still a decline in double digits at a -11.7% at an annual rate over three months. All of this helps to confuse the true trend for industrial production in Japan. Investment goods seem to be suffering from the global growth malaise.

The chart at the top shows that if we plot growth rates for Japan of 12-months, six-months, and three-months, over the past six months or so, output on most of these gauges has been consistently declining or weakening. That chart concentrates on comparing three-month growth to three-month growth, six-month growth to six-month growth and 12-month growth to 12-month growth. The growth rates connect the dots (literally) along the same growth horizons treating them as time-series rather than jumping between these tenors to compare three-months to six-months to 12-months. The time-series graphic presentation of the growth data makes developing trends seem weaker than they appear in the table that compares growth across tenors.

In the quarter to date (QTD), there has been strong revival for overall industrial production that is growing at a 7.5% annual rate two months into the fourth quarter; manufacturing is growing at an 8.2% annual rate QTD. Consumer goods output two months into this quarter is growing at an 18.4% annual rate with their intermediate goods growing at an 8.2% annual rate; investment goods output is contracting at a 6.8% annual rate.

Industrial production in Japan has been struggling after COVID struck. The far-right hand column calculates aggregate growth from today's index to the index that prevailed in January 2020; for all the industry and sector measures in the table, output is lower than it was in January 2020 except for the utilities, electric and gas. That is net lower output over a period of nearly three years for most industries and sectors.