Bangkok--7 Dec--HSBC Thailand
Things are going sideways. You may have thought, looking at markets, that growth bounced in the last couple of months or so. Well, not exactly. Sure, some headline PMIs have perked up, especially in the West, but Asia isn't getting much of a lift. Trade remains stalled, and even local demand is treading water. The only thing that's surging is prices, especially of inputs, reflecting presumably the slide in currencies. And that's not going to help much if demand doesn't accelerate. On the contrary, it'll squeeze profit margins.
Take a look at our first heatmap. Things are clearly looking up in the US and the Eurozone. Well, that's been the case for several months now. Yet, oddly, this strength is not feeding through to Asia. The region has seemingly decoupled from the West.
True, China's official PMI rose, but the Caixin measure pulled back. Taiwan is doing nicely, somehow, but Korea isn't. On the whole, ASEAN is still below the waterline, with Thailand, Malaysia, and Indonesia being eclipsed by Vietnam and the Philippines. India is worth watching: the manufacturing PMI fell two points in November, possibly reflecting the effect of "demonetization".
New orders, a more forward looking indicator, tell roughly the same story. Up in some places, contracting or down in most. On average, new orders for the region are still positive, but eased from October. Relative to inventories, new orders across emerging Asia also dipped, suggesting that production will only lift marginally in the coming months (chart 1).
Our second heatmap shows that new exports orders are barely rising. They were up nicely in Taiwan, the Philippines and Vietnam, and marginally in China (on the official measure). But note the pull-back elsewhere, including Malaysia, Japan, Thailand, India, and Indonesia. For emerging Asia overall, new export orders were roughly unchanged on the month (chart 2). Interestingly, the outlook for exports is better in the US and Eurozone, but that's been the case for a while now without a meaningful boost for trade in Asia.
Employment in the region, at least, appears to be stabilizing. In China, Indonesia, Korea, and Thailand, manufactures are still shedding workers, but at a less aggressive pace. Elsewhere, payrolls are expanding, which limits downside risks to consumption.
Perhaps unsurprisingly, given the slide in exchange rates over the past month, there's been a spike in input costs. Output prices, too, have risen, though not by quite as much (chart 3). Here's the thing though: price pressures are rising without a meaningful bounce in end-demand. For the most part, this therefore likely reflects currency moves and the bounce in commodity prices. That can't be good for margins. And at time when financial conditions are tightening, this is bound to weigh on investment. Oh dear.
Frederic Neumann Co-head of Asia Economics Research Abanti Bhaumik Economics Associate, Bangalore