Economy in Brief

The finalized version for EMU industrial production in the European Monetary Union in July showed that much better than preliminary data had suggested. Overall output rose 0.3% in July, but output in manufacturing on the month rose by 0.7%. Consumer goods output rose by 1.4% on the month with consumer durables output up by 1.1% and nondurables output up by 1.5%. Intermediate goods output rose by 0.5% with capital goods output rising by 1.3%. All of these are very solid numbers.

The median result for reporting European Monetary Union members had shown a decline of 0.6% for manufacturing output. And, of course, the problem with that is that it's a median among countries without weights being applied to account for size. Germany, for example, showed an increase in output in July of 2.2% in its manufacturing sector, France showed a decline of 1.6%, Italy showed an increase of 1.4%, with Spain showing a rise of 3.8%. That's three of the largest 4 monetary union members showing solid increases in output.

Sequential data showed that output is holding up quite nicely with growth 2.2% over 12 months, up 3.1% at an annual rate over six months and up by 2.5% in an annual rate over three months. For manufacturing, the results are roughly the same, with a 2.1% gain over 12 months, 3.5% annualized over six months and 2.4% annualized over three months.

The quarter-to-date numbers showed that output is developing nicely in the third quarter with overall output up at a 1.2% annual rate as of July, the first month in the quarter with that growth rate representing annualized growth in July over the second quarter average; manufacturing output on the same basis is up at a 2.6% annual rate. All the sector growth rates are positive as well QTD except for intermediate goods.

Percentile queue standings rank current growth rates among past historic growth rates (back to 2007) and on this basis, overall production growth has a 63.3 percentile rank, manufacturing has a 60.1 percentile rank, consumer goods IP is extremely strong with a 98.2 percentile rank, pushed ahead by nondurables that have a 98-percentile rank. Consumer IP growth is held back somewhat by consumer durables that have only a 45.9 percentile ranking, below its median for the previous period. Intermediate goods and capital goods also have below-median rankings (rankings below 50%) at the 43.6 percentile for intermediate goods and 42.2 percentile for capital goods. Still, none of the sectors is particularly weak; being at the 42nd percentile or better means that the shortfall from the median is not extreme and the weighted average for overall production and for manufacturing still stands in its 60th percentile or better.

As we look down the column to look at country-specific manufacturing readings, we find that there are only 4 of 13 reporting monetary union members with manufacturing output below its median in July. And those countries are Finland, the Netherlands, Luxembourg, and Greece, all moderate to small-sized economies.

On balance, the performance the monetary union output in July is quite solid. And these readings are joined by an August reading for IP in the United States that showed a surprising positive turn on the month. It's too soon to say that conditions globally are improving faster or more than had been expected; however, there is a whiff of that in the air despite some sour readings on job growth in the United States.

This week, we examine a broad set of key developments, from China’s disappointing August data and structural economic challenges to a flurry of central bank decisions across Japan, Taiwan, and Indonesia. China’s latest data disappointed again, reinforcing concerns that US trade tariffs are starting to bite as the front-loading boost fades (chart 1). More broadly, China continues to struggle with its transition toward a more consumption-driven economy (chart 2). Recent figures show little sign of this pivot, with trade remaining resilient while consumption still lags.

In Japan, the Bank of Japan (BoJ) will decide on interest rates during a central bank-heavy week, following key decisions from the Fed and the Bank of England (chart 3). The BoJ is widely expected to hold its policy rate steady for now as the country navigates a period of political uncertainty after Prime Minister Ishiba’s recent resignation. Still, there has been some good news: the Cabinet Office estimates that Japan’s output gap turned positive for the first time in two years, although figures differ across methods and sources (chart 4).

Turning to Taiwan, uncertainty remains in the semiconductor sector as US tariffs loom. However, major Taiwanese producers’ substantial US investments may position them for exemptions (chart 5). Finally, in Indonesia, Bank Indonesia’s policy decision is also due this week on Wednesday. While the door to monetary easing remains open, the timing of any move is unclear. Meanwhile, Indonesian asset prices fell again after the removal of one of its long-serving Finance Ministers (chart 6), with her successor’s plans raising renewed concerns about fiscal discipline.

China China’s latest monthly data releases disappointed again, showing a further slowdown in growth. This has strengthened investor concerns that US trade tariffs are finally starting to weigh on the economy as earlier front-loading effects fade. Year-on-year growth in retail sales and industrial production fell to their lowest levels in about a year, while fixed asset investment was nearly flat (chart 1). Property prices also extended their multi-year decline. In response to the weakening outlook, calls for additional policy support have grown, though several measures have already been announced. For instance, domestic consumption may get another boost as the government’s new personal consumer loan interest rate subsidy program takes effect this month. If realized, this would follow the one-off lift from the earlier durable goods subsidy program.