Japan hit by Weak Domestic Spending; Lower Rates Help Australia
Though Japanese exports exceeded imports in March 2015, weak domestic spending appears to have impacted the country’s nascent economic recovery. Wage growth needs to trickle down to workers employed in smaller Japanese firms, which would also push up inflation. Thankfully, the Bank of Japan has said it will hold its stimulus program in place until economic growth picks up pace. Lower interest rates and a weak currency should hold the Australian economy in good stead despite headwinds from the plunging prices of iron ore, the country’s chief export commodity.
For New Zealand, low inflation resulting from falling gasoline prices and interest rates that are likely to be kept low, should serve as catalysts for growth. Singapore’s export-oriented economy should benefit from increased trade with the U.S., Europe and China, which most likely will make up for the lag in manufacturing. Financial services and China-related tourism have been the lifeblood of Hong Kong’s economy since the city came out of British control in the late 90s. However, tourism in Hong Kong has been hit by China’s slowing growth and anti-corruption crackdown, which has reduced the number of visitors from China to the city state.
At a Glance
Japan: Despite the trade surplus and encouraging export numbers, Japan’s retail sales figures disappointed in March, showing a year-on-year decline of 9.7 percent. The issue now is whether Japan’s smaller companies can compete with their larger rivals and raise wages in light of weak consumer spending.
Australia: Fitch affirmed Australia’s credit rating, citing its low public debt, highly developed economy and stable growth despite reliance on the export of commodities. The agency expects Australia’s real GDP growth to rise to 3.2 percent in 2016.
Hong Kong: Hong Kong’s economic growth is closely tied to the fortunes of its bigger neighbor, China. After clocking a growth rate of 2.9 percent in 2013, the city’s economy slowed down to 2.3 percent in 2014. In February 2015, the government unveiled a budgetary package worth $4.4 billion to speed up economic growth.
New Zealand: Inflation in New Zealand came down to the lowest level seen in more than 15 years during the first quarter of 2015, according to a Bloomberg news report. Consumer prices fell 0.3 percent from the fourth quarter, mainly due to the fall in gasoline prices.
Singapore: Exceeding analyst estimates in the last quarter of 2014, the economy of Singapore grew 2.1 percent in the fourth quarter on year-on-year basis, according to revised figures. Thanks to lower oil prices, U.S. consumers are able to save more, which in turn helps Singapore’s exports bound for America.
JAPAN: EXPORTS RISE WHILE DOMESTIC SPENDING DISAPPOINTS
Japan, the biggest of the developed economies in the region, recorded a trade surplus in March 2015, the first in almost three years, helped by encouraging export trends, according to a Reuters report. Helped by the weak yen, exports, which increased 8.5 percent annually, were also boosted by the sale of cars and electronic items to the United States, Europe and elsewhere. On the other hand, the value of oil imports fell substantially year-on-year in March, due to cheap oil. Exports to China rose 3.9 percent year-on-year in March, while exports bound for Asia increased an annualized 6.7 percent in March.
Despite the trade surplus and encouraging export numbers, retail sales figures disappointed in March, showing a year-on-year decline of 9.7 percent. The issue now is whether Japan’s smaller companies can compete with their larger rivals and raise wages in light of weak consumer spending. As cheaper oil stands in the way of pushing up inflation, Bank of Japan Governor Haruhiko Kuroda has gone on record saying the bank will maintain its stimulus program until its inflation target of 2 percent is achieved. The central bank has said the country’s economic recovery has been moderate so far.
For the fourth quarter of 2014, the latest period for which figures are available, Japan’s economy expanded just 0.2 percent from the previous quarter, according to revised data. Though the marginal growth confirmed that the economy has indeed come out of the recession, it pointed to weak capital spending and slowing private consumption. Though capital spending by Japan’s corporates recorded an increase of 2.8 percent year-on-year in the fourth quarter, it was a decline from the 5.5 percent recorded in the previous quarter. Following a similar action by Moody’s in December 2014, rating agency Fitch downgraded Japan’s credit rating in April 2015, citing the Abe administration’s lack of tangible budgetary measures to offset the delay in the sales tax increase rollout.
AUSTRALIA: BENEFITING FROM LOWER INTEREST RATES, WEAK CURRENCY
To fuel economic growth, the Reserve Bank of Australia reduced interest rates to 2.25 percent in February 2015. According to a Reuters news report, RBA Assistant Governor Christopher Kent recently stated that while lower rates would benefit the general economy and the country’s housing market, he sounded a note of caution that it does not guarantee steady economic growth. He further noted that the lower Australian Dollar was also helping the economy to a certain extent, with the fall boosting demand growth in sectors such as education and tourism.
Meanwhile, Fitch affirmed Australia’s credit rating, citing its low public debt, highly developed economy and stable growth despite a reliance on export of commodities. The agency expects Australia’s real GDP growth will rise to 3.2 percent in 2016. Encouragingly, a survey conducted by Australia and New Zealand Banking Group showed that advertisements for jobs in newspapers and the Internet increased for the ninth consecutive month in February, a sign of increasing demand for labor in the country. According to Reuters, the rate of unemployment stood at 6.3 percent in March, after rising to 6.4 percent the month before.
Still, Australia’s iron ore exports, the country’s industry staple, remained depressed. In a recent revision, Australia reduced its price forecast for iron ore in 2015 to $60 a ton, a further drop from its projection of $63 a ton just three months back. Clearly, the rising supply in the market due to increased production and slowing demand from China have been pushing iron ore prices down for the past year. Furthermore, the demand for iron ore is unlikely to pick up soon, as China has lowered its economic growth target.
HONG KONG: GOVERNMENT INTRODUCES BUDGETARY SOPS TO BOOST GROWTH
Hong Kong’s economic growth is closely tied to the fortunes of its bigger neighbor, China. After clocking a growth rate of 2.9 percent in 2013, the city’s economy slowed down to 2.3 percent in 2014. In February 2015, the government launched a budgetary package worth $4.4 billion to speed up economic growth, which is expected to fall between 1 percent to 3 percent in 2015, according to a forecast by the government.
Investment bank Credit Suisse revised down its 2015 GDP forecast for Hong Kong to 1.6 percent, citing the fallout from the slowdown in mainland China. For 2016, Credit Suisse expects the economy to grow 2.2 percent. Financial services and China-related tourism, which contributes almost 1 percent to its GDP growth, have been the lifeblood of Hong Kong’s economy since the city came out of British control. However, tourism in Hong Kong has been hit by China’s slowing growth and anti-corruption crackdown, which has reduced the number of visitors from China to the island. Furthermore, Hong Kong has already been visited by most Chinese people, who now seek other tourist destinations.
Financial services in Hong Kong is competitive, but the number of people employed by the sector is limited, according to head of China research at Credit Suisse, Vincent Chan. Manufacturing, which was prominent during the 70s and 80s when Hong Kong was a colonial outpost, now contributes less than 2 percent of the economy’s GDP, according to the investment bank. Mr. Chan also pointed out that manufacturing activity in Hong Kong is not high-end and lacks finesse.
NEW ZEALAND: BENIGN INFLATION, INTEREST RATES FAVOR GROWTH
Inflation in New Zealand declined to the lowest level seen in more than 15 years during the first quarter of 2015, according to a Bloomberg news report. Consumer prices fell 0.3 percent from the fourth quarter, mainly due to the fall in gasoline prices. The fall in consumer prices also fanned hopes that the central bank would bring down interest rates sometime later in 2015. Encouragingly, home prices in New Zealand showed an increase for the second month in February, helped by strong demand for housing in the city of Auckland, where prices rose 13 percent year-on-year in February.
On another note, New Zealand Finance Minister Bill English said the government is unlikely to record a budget surplus this year due to low inflation. Prime Minister John Key, who was re-elected for a third time in 2014, had pledged to post a budget surplus for the period ending June 30, 2015. The Key government also disappointed by stating, as previously promised, that it does not have the requisite numbers in parliament to make amendments to the Resource Management Act intended to reduce red tape in business and accelerate economic growth.
Due to the strength of its currency versus the Australian Dollar, New Zealand’s wine-making industry is looking to export to markets other than Australia such as the United States. The country’s wine exports to Australia fell for the first time in more than a decade in 2014, while shipments to the U.S. increased by double digits, a Reuters news report said.
SINGAPORE: SURGE IN EXPORTS COMPENSATE FOR LAG IN MANUFACTURING
Exceeding analyst estimates in the last quarter of 2014, the economy of Singapore grew 2.1 percent in the fourth quarter on a year-on-year basis, according to revised figures. Thanks to lower oil prices, U.S. consumers are able to save more, which in turn helps Singapore’s exports bound for America. Moreover, the Monetary Authority of Singapore had devalued its currency in January to make its exports competitive abroad. Singapore’s non-oil domestic exports increased 18.5 percent in March from the year-ago period, the highest in three years, helped by increased sales to the U.S. and Europe, a Reuters report said. Shipments to China went up by 1.1 percent in March compared to a sharp contraction the month before. The electronics and pharmaceuticals sectors contributed the most to the surge in exports.
However, the Monetary Authority refrained from easing policy further in its meeting on April 14, saying improving global conditions would boost the export-oriented economy. In a sign that the government’s effort to cool the city-state’s housing market is bearing fruit, private home prices fell 1.0 percent in the first quarter of 2015, the sixth quarterly contraction in a row.
Despite the surge in exports, Singapore’s industrial production appears to lag behind, according to some surveys as new orders showed a decline. However, it is expected that the improvement in exports would compensate for the slowing industrial output. Still, other labor-intensive sectors of the economy such as food services, retail and construction may face growth constraints as the labor market remains tight, according to the trade ministry.
This article is for informational purposes only. This article is not intended to provide tax, legal, insurance or other investment advice. Unless otherwise specified, you are solely responsible for determining whether any investment, security or other product or service is appropriate for you based on your personal investment objectives and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation. The information contained in this article does not, in any way, constitute investment advice and should not be considered a recommendation to buy or sell any security discussed herein. It should not be assumed that any investment will be profitable or will equal the performance of any security mentioned herein. Thomas White International, Ltd, may, from time to time, have a position or interest in, or may buy, sell or otherwise transact in, or with respect to, a particular security, issuer or market on our own behalf or on behalf of a client account.
FORWARD LOOKING STATEMENTS
Certain statements made in this article may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements.
