Haver Analytics
Haver Analytics

Economy in Brief

  • In this week's letter, we look at direct investment flows across Asian economies. We find that there has been a discernible decline in foreign direct investment (FDI) across several economies in the region in recent quarters. This dip in investment activity can be attributed to various factors, including shifts in investor sentiment towards the recipient economies.

    Additionally, we explore outbound direct investment flows from these economies. Hong Kong remains the primary intermediary for mainland China's investment flows, underscoring its crucial role in facilitating cross-border investments. Conversely, Japan, boasting the world’s largest stock of net international assets, maintains a strong preference for the United States as its favored investment destination. This preference underscores the enduring ties and strategic partnerships between the two nations.

    Finally we shift our focus to scrutinize specific economies in Southeast Asia, where we observe a noteworthy recovery in FDI inflows following the pandemic. We find that investor interest in pivotal themes such as the energy transition and the digital economy has played a vital role in propelling these flows. We note, nevertheless a slight retracement in these flows in 2023.

    China Foreign direct investment (FDI) in China has plunged in recent months, based on the standard measure adopted by the Ministry of Commerce. Monthly actual utilized FDI has consistently shown double-digit year-on-year declines throughout the year so far, with the contraction worsening to 38.2% in March (Chart 1). Additionally, China’s direct investment liability flow plunged to under 300 billion yuan in 2023, from 1.25 trillion in 2022. Analysts attribute China’s FDI declines to various factors, including domestic growth risks and ongoing tensions with other countries, such as the United States. However, the impact on growth may be nuanced, as business investment within China is predominantly domestically sourced. The outlook on China’s broader economy however, remains uncertain, with April’s economic data presenting a mixed picture. Specifically, growth in retail sales and fixed asset investment slowed further in April, while industrial production logged an unexpected growth rebound.

    • Leading index decline is largest in six months.
    • Coincident Indicators continue to increase moderately.
    • Lagging index strengthens after holding steady.
  • EMU Inflation Trends Offer Hope and Hype- Inflation in the European Monetary Union rose by 0.2% month-to-month in April, the same as in March. Core inflation, however, picked up, rising by 0.4% but that was after being flat in March. The sequential growth rates from 12-months to six-months to three-months show the headline inflation rate at 2.4% over 12-months falling to 2% over 6-months, then rising to a 3% annual rate over three-months. The core rate for the monetary union rose 2.9% over 12-months at a 2.7% annual rate over six-months, it steps up to a 2.8% annual rate over three-months. Headline inflation is resisting moving down to the 2% level consistently while core inflation appears to be stuck just short of 3%. Whether these trends are good enough depends on whether the ECB sees itself implementing precision-guided policy or playing horseshoes and hand grenades.

    • Single-family starts decline but multi-family surge.
    • Starts are mixed throughout the country.
    • Building permits fall to lowest level in over one year.
    • IP was unchanged in April with manufacturing falling 0.3% m/m
    • Manufacturing decline led by 2.0% m/m drop in motor vehicle output
    • Mining fell for the third month of the past four
    • Capacity utilization slipped to 78.4%
    • Import prices rise for fourth consecutive month.
    • Excluding fuels, import prices edge up for sixth straight month.
    • Export price gain improves.
    • Even with the May decline, the index remains in positive territory, pointing to expansion.
    • However, both shipments and orders subindexes fell markedly and more worryingly into contraction territory.
    • The employment subindex rose slightly but remained negative.
    • Expectations decline slightly but remain elevated.
    • Initial claims come back toward recent tight range
    • Continued weeks claimed rise somewhat in May 4 week
    • But insured unemployment rate holds at 1.2% into a 14th month