Economy in Brief

The Belgian National Bank index has weakened in each of the last four months. Manufacturing also has weakened for four months running. The production index has suddenly, in September, declined sharply, falling from a small negative reading over the previous four months to a suddenly much weaker reading of -23 in September. A case of SOW: Sudden onset weakness. And central banks remain concerned. They already are cutting inflation ‘slack’ to hover at above target levels as they find reasons to cut rates and try to preserve growth while exuding optimism on inflation coming to heel…some day.

Meanwhile, trends have broadly shifted in Belgium. The domestic order trend is weaker in September, falling to -15 from -6 in August. But that is no example of sudden onset weakness. The domestic orders index has been even weaker in recent months and has been fluctuating. However, foreign orders have turned sharply weaker in September, falling to -26 from -3 in August after four months of logging small negative numbers. Foreign orders are back to the sort of weak reading they had logged in February of this year except they are even a bit weaker now, in September. Prices also have turned weaker; they were last weaker back in March of this year. The coincident weakness in activity orders and prices makes it look as though encroaching economic weakness is for real.

Current assessments show persistently larger negative readings and readings with a slightly weaker tone when assessed over equal time periods on a ranking basis. Both total and foreign orders are quite weak in September and are weakening further. On a ranking basis, they have a standing in their 6th to 9th percentiles- exceptionally weak- when ranked on data back to 1997.

However, the other metrics, such as for the BNB headline, for production and trend analysis can be even weaker on ranking basis than these deep negative survey readings assessing orders. For example, the headline for the Belgian Bank index has an 11.9 percentile standing. Manufacturing has a 10.6 percentile standing. The production trend has a 1.5 percentile standing - an exceptionally weak trend assessment. The domestic order trend has a 17.9 percentile standing, but the foreign order trend has an extremely low, 2.4 percentile standing. The price trend lags behind these weak readings with a still very weak 16.1 percentile standing of its own. There is nothing here that is reassuring, and Belgium is a European country at the crossroads of a lot of trade.

The assessments for other sectors such as wholesaling & retailing, construction, and business services show rankings that range from a low at an 11.9 percentile ranking for construction to a 37.1 percentile ranking for wholesaling & retailing. Services are generally more resilient.

September PMI readings faded across the board. Composite PMI readings fell in each of the seven early reporting entities. In fact, PMIs fell for all composites and services readings generating showed only a single increase for manufacturing in September - that was in France. Among the 21 composite and sector readings in August, 12 had improved, the same as in July. The September result is a watershed change compared to the last two months, where although data still were mixed, they favored improvement.

With the turnabout in September not even included, the sequential readings are souring (the sequential averages are presented only on finalized data). The three-month averages (through August) still only show improvement in six of twenty-one composite and sector readings. That is a sharp shift from the six-month change where the averages improved broadly compared to the 12-month averages, declining in only five composite and headline readings. Over 12 months conditions broadly improved compared to a year ago, with only eight composites and sectors showing a worsening.

The queue percentile rankings are mostly below the 50% mark that reflects the median for the period of ranking back to January 2020. The ranking exceptions are India where the composite and both sectors rank above their respective medians, the United Kingdom, where the composite is above a 50% ranking, and the United States, where the composite and the service sectors have above-median rankings. Still, for the U.S., the U.K. and India, all readings weakened this month. For the U.S., the manufacturing reading is exceptionally weak at an 8.8 percentile standing, tied with Germany for the second lowest standing in the group.

As an indicator of how troubled the global economy has been in this group of advanced countries plus India, of the 21 composite and sector rankings for the group, 12 of them show weaker readings in September than in January 2020. As we noted above, few are above their period median values based on ranking statistics.

For this group of respondents, the average composite ranking is 42.9, the average manufacturing reading is 23.6 and the average service sector reading is 50.6. It is the service sector that has been providing the backbone for sustaining growth while manufacturing has been severely impaired.

In this week's newsletter, we explore the recent series of central bank decisions in Asia, framed by the Fed’s 50 bps rate cut last week. The Fed's move to begin its easing cycle has opened the door for regional central banks to follow suit, particularly in light of yield differentials (Chart 1). However, unique economic conditions may lead individual central banks to pursue independent paths. For instance, we examine the Bank of Japan’s decision to maintain its policy stance last week, discussing the implications of financial market volatility and the potential for future tightening moves this year (Chart 2). In Taiwan, the central bank kept its policy rate high due to persistent inflation, while also raising reserve requirements to address property market –related concerns (Chart 3). Conversely, some central banks, such as Indonesia’s, have preemptively cut rates, benefiting from more favorable yield differentials for the rupiah (Chart 4). Looking ahead, we will also cover the Reserve Bank of Australia’s upcoming decision, where observers largely expect no changes to the policy rate, also due to inflation concerns, despite significant financial strains on households (Chart 5). Finally, we will touch on the monetary policies of other central banks in Asia, specifically those of Thailand and Malaysia (Chart 6).

The Fed’s easing cycle The US Fed officially began its easing cycle last week with a 50 basis point rate cut, meeting the expectations of some economists while surprising others who anticipated a more conservative 25 basis point cut. This decision reinforces the broader trend of easing among G10 central banks and creates opportunities for central banks in the Asia-Pacific region to consider similar actions, depending on their domestic conditions. The Fed's move also alleviates concerns about the potential impact of yield differentials stemming from their easing policies. Notably, some central banks in the region had already initiated interest rate cuts ahead of the Fed, a topic we will explore in more detail below.

The industry climate gauge from the INSEE survey reports a standing in its 27th percentile with manufacturing production expectations at the 29th percentile; both are relatively weak readings. The services sector has a weak reading, too, that stands in its 36th percentile. The standing for services is slightly stronger than for manufacturing and production expectations, but both are basically in the lower one-third of the queue of readings for each sector. In September, industry climate has weakened although manufacturing production expectations improved slightly. The service sector index is slightly improved. In recent times, globally manufacturing has been weak, while the services sector has provided the bulk of the growth. According to the INSEE surveys, there was not much strength in either sector as of September.

Manufacturing The production recent trend observation for September did improve compared to August when it moved up to a -6.2 reading from -13 previously. However, orders and demand weakened to -19.5 in September from -15.9 in August; there was a similar deterioration for foreign orders and demand.

Prices show less pressure with the own-sector likely price trend moving lower to +1.2 in September from +2.3 in August. While the manufacturing price level overall trend just slips to 2.0 in September from 5.6 in August. The percentile standings for all of these readings are in or near in the lower third of their respective historic queue of data across the board. The only exception is foreign orders and demand that has a 56.3 percentile standing. That's the only standing above the 50th percentile, which puts the reading above its historic median on data back to 2001.