There are major problems brewing in the Pacific for the world economy

It has been something of an economic tenet for a while now that the most dynamic part of the world economy is to be found in the Pacific region. However the credit crunch era has thrown up all sorts of challenges to what were established ideas and it is doing so again right now. The particular issue is what was supposed to be a strength which is trade and we saw another worrying sign on Wednesday.

The Monetary Policy Board of the Bank of Korea decided today to lower the Base Rate by 25 basis points, from 1.50% to 1.25%.

That is South Korea as we continue our journey past 750 interest-rate cuts in the credit crunch era. Here is their answer to Carly Simon’s famous question, why?

Economic growth in Korea has continued to slow. Private consumption has slowed somewhat, while investment has remained weak. Exports have sustained their sluggish trend as the export prices of semiconductors, petroleum products and chemicals have continued to fall amid the weakening of global trade.

So we see that the economy has been hit by trade issues and that unsurprisingly this has hit investment but also that it has fed through into domestic consumption. Next we got further confirmation that they are blaming trade as we wonder what is Korean for Johnny Foreigner?

Affected mainly by worsening global economic conditions, the growth of the Korean economy is expected to fall back below the July projection…….. The downside risks include a spread of  global trade disputes, a heightening of geopolitical risks and a deepening global
economic slowdown.

We also see that the Korean government has already acted.

Among the upside risks to the growth outlook are an improvement in domestic demand thanks to a strengthening of government policies to shore up the economy and progress in US-China trade negotiations.

 

Quarterly economic growth has been erratic so far this year but Xinhuanet gives us an idea of the trend.

From a year earlier, the real GDP grew 2 percent in the second quarter. It was lower than an increase of 2.8 percent for the same quarter of 2017 and a growth of 2.9 percent for the same quarter of 2018.

Singapore

On the one hand the outlook is supposed to be bright.

Singapore has knocked the United States out of the top spot in the World Economic Forum’s annual competitiveness report. The index, published on Wednesday, takes stock of an economy’s competitive landscape, measuring factors such as macroeconomic stability, infrastructure, the labor market and innovation capability. ( CNN )

The good cheer was not repeated in this from the Monetary Authority of Singapore on Monday.

According to the Advance Estimates released by the Ministry of Trade and Industry today, the Singapore economy grew by 0.1% year-on-year in Q3 2019, similar to the preceding quarter. In the last six months, the drag on GDP growth exerted by the manufacturing sector has intensified, reflecting the ongoing downturn in the global electronics cycle as well as the pullback in investment spending, caused in part by the uncertainty in US-China relations.

They are very sharp with the GDP number perhaps helped by being a City state. The future does not look too bright either if we look through the rhetoric.

On the whole, Singapore’s GDP growth is projected to come in at around the mid-point of the 0–1% forecast range in 2019 and improve modestly in 2020.

The Straits Times has fone a heroic job trying to make the data below look positive.

Non-oil domestic exports (Nodx) fell by 8.1 per cent in September, a somewhat better showing than the 9 percent fall in August, according to data released by Enterprise Singapore on Thursday (Oct 17).

This was the third month in a row where shipments improved, and the August figure – revised downwards from the 8.9 per cent fall previously reported – also marked a return to single-digit territory after five consecutive months of double-digit declines.

But many eyes will have turned to this bit.

Electronics products weighed down Nodx, shrinking 24.8 per cent year-on-year in September, following a 25.9 per cent contraction in August.

China

This morning has brought the news we were pretty much expecting.

China’s economic growth slowed in the third quarter amid weak demand at home and as the trade war with the U.S. drags on exports.

Gross domestic product rose 6% in the July-September period from a year ago, the slowest pace since the early 1990s and weaker than the consensus forecast of 6.1%. Factory output rose 5.8% in September, retail sales expanded 7.8%, while investment gained 5.4% in the first nine months of the year. ( Bloomberg ).

Back on the 21st of January I pointed out this.

The M1 money supply statistics show us that growth was a mere 1.5% over 2018 which is a lot lower than the other economic numbers coming out of China and meaning that we can expect more slowing in the early part of 2019. No wonder we have seen some policy easing and I would not be surprised if there was more of it.

The numbers have been slipping away ever since although Bloomberg tries to put a brave face on it. After all you fo not want to upset the Chinese as you might find yourself like the NBA.

Even with the slowdown, year to date growth of 6.2% suggests the government can hit its 6% and 6.5% for 2019.

Actually M1 money supply growth picked up after January to as high as 4.4% but has now fallen back to 3.4%. So the easing has helped and we are not looking at an “end of the world as we know it” scenario in domestic terms but rather caution.

Before I move on let me point out the consequences of the African swine fever outbreak in the pig industry.

Of which, livestock meat price up by 46.9 percent, affecting nearly 2.03 percentage points increase in the CPI (price of pork was up by 69.3 percent, affecting nearly 1.65 percentage points increase in the CPI), poultry meat up by 14.7 percent, affecting nearly 0.18 percentage point increase in the CPI. ( China Bureau of Statistics )

Japan

Overnight the Cabinet Office has informed us that the Bank of Japan is getting ever further away from its inflation target.

  The consumer price index for Japan in September 2019 was 101.9 (2015=100), up 0.2% over the year before seasonal adjustment, and the same level as  the previous month on a seasonally adjusted basis.

They will of course torture the numbers to find any flicker so if you here about furniture and household utensils ( up 2.7%) that will be why.

Next month the issue will be solved by the Consumption Tax rise but of course that takes money out of workers and consumers pockets at a time of economic trouble. What could go wrong?

Comment

As you can see there are plenty of signs of economic trouble in the Pacific region. Many of these countries are used to much higher rates of economic growth than us in the west. According to Bloomberg Indonesia is worried too.

Indonesia‘s central bank has room to cut interest rates further, perhaps as soon as next week, says its deputy governor

Then of course there is the Reserve Bank of Australia which is cutting interest-rates at a rapid rate. In fact Deputy Governor Debelle gave a speech in Sydney updating us on his priority.

The housing market has a pervasive impact on the Australian economy. It is the popular topic of any number of conversations around barbeques and dinner tables. It generates reams of newspaper stories and reality TV shows. You could be forgiven for thinking that the housing market is the Australian economy.[1] That clearly is not the case. But at the same time, developments in the housing market, both the established market and housing construction, have a broader impact than the simple numbers would suggest.

 

 

13 thoughts on “There are major problems brewing in the Pacific for the world economy

  1. You roll a snowball down a hill and it gets bigger and bigger until it hits something and then it gets shattered.

    The same thing applies to debt and asset prices when they have been inflated on too much debt or greed.

  2. Hello Shaun,

    re: “You could be forgiven for thinking that the housing market is the Australian economy”

    I sometimes think that its not Oz but the Western world economy in a nut shell

    what a way to run a civilization !

    Forbin

    • forbin,

      The world population wandering around in a myopia asset prices pumped up all around the world and if someone thinks the asset they are invested in is too high they move on to other assets and pump those up and it just goes on and on.

      Some of the canny investors have gone into property with reasonable yields but even these can crash if the world economy does the same but there is less chance if there is a shortage of property.

      Bear in mind if unemployment rises some people will be turned out of their houses and the young forced to live with mum and dad or place themselves with friends.

      There could be more property made available if taxes be placed on amount of rooms in a house and commercial property be forced to taxed more when empty and forced to convert to flats but the conservative government wont want to do that.

      The fact is there are too many people on the earth chasing their dreams and if the well to do stood back and were prepared to share more it would benefit the whole.

      There is no perfect answer in an imperfect world once one problem is solved there will be another one round the corner.

      If the BREXIT vote is passed tomorrow the £ will probably climb then talk of interest rises in the pipe line then still cut later on as the world economy slows further.

      Well those are my predictions because consumerism is damaging the world, and I am not an eco activist, but can see for myself the damage consumerism is doing to society and it has to change.

      • re : ” the damage consumerism is doing to society ”

        (sighs) the West did not “invent” consumerism if you mean trading for goods and services ,far back in time we invented a concept called ” money”

        it was better than barter

        but money is for the people to trade with and I have concluded that control of it to a private company is not in the interests of the people.

        See what Mark does – he should be an elected person , the BoE should answer directly to the people. btw a Soviet style people control as la Corbyn is just as bad as private individuals IMHO.

        ok that is politics and Shaun avoids it but sometimes you cannot when discussing economics .

        agree or disagree , we can at least discuss it here

        Forbin

        • forbin,

          You have a valid point and I respect that. All I am saying is the world is over populated and consumerism is damaging the world. I am not saying this is easy to sort out, but the pan boiling over and fingers will get burnt.

          The west is capitalism and capitalism creates consumerism and it is damaging the planet.

          As for Corbyn he would take the UK back decades and ruin the country and I wouldn’t want that.

          I suspect the world will still change regardless of any concerns most people actually accept the planet needs to change but most people only prepared to make small sacrifices at the moment. There is no point avoiding plastic bottles then jetting themselves off on holiday.

          • Hello Peter

            you also have valid points and its nice to read your posts .

            so on plastics and waste in general it is actually a waste management problem if we find the dammed stuff in the oceans . It is a rather difficult issue to resolve I’ll not disagree with , but plastics themselves have much to recommend them .

            As far as Corbyn goes , he can bark but I seriously doubt he’ll ever get into power when push comes to shove. It’s easy to be an opposition leader 😉

            And we agree that too many people will frankly make things difficult to manage but manage we must.

            Still have a nice weekend , a single malt awaits me , lets see how how long the bottle lasts !

            Forbin

          • the west is capitalism?!! Make a visit to China or anywhere else in south east Asia and you will see the most rampant dog eat dog capitalism anywhere on this planet.

  3. Add in the delayed consequences of their currencies collapsing as a result of central banks repeatedly cutting rates and trying to help export their way out of the mess they are in and their debt(priced in dollars) goes through the roof.

    This pacific external debt will be the next biggie I think, leading to defaults, bond market wobbles and bank insolvencies, I think central banks are going to be very busy over the next few years, trying to prevent all these bubbles they created from bursting, requiring an even bigger bubble next time to prevent the current bubbles from bursting, we don’t have markets any more and our economies are now reliant on this series of bubbles not imploding.

    • Hi Kevin

      The issue with falling currencies is that so many are at the same game! If we look closer to home at the Euro we see that in spite of the efforts of the ECB to lower its currency we see it having a good day only falling against the UK £ which of course has ground to make up. All Singapore can do is try to slow the appreciation of its currency.

      “MAS will therefore reduce slightly the rate of appreciation of the S$NEER policy band. There will be no change to the width of the policy band and the level at which it is centred. This measured adjustment to the policy stance is consistent with medium-term price stability, given the current economic outlook. MAS will continue to closely monitor economic developments and is prepared to recalibrate monetary policy should prospects for inflation and growth weaken significantly. ”

      The text books did not allow for so many being at the same game at once. At which point it is a zero sum game.

  4. Hi Shaun,
    I think Deputy Governor Debelle might have it the wrong way round.
    The economy has a pervasive impact on the housing market – much the same as in NZ.

    The population doesn’t suddenly decide to cool its interest in property for no reason; as Peter Pan describes above. It’s either fear or greed – – as determined by the economic “barometer”.

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