The Korean Shocker

This blog post should have been made on Monday morning. Since then, Indonesia released its 2011 and 4Q2011 GDP growth figures. In an eerie similarity to Chinese data and analysts’ ability to get the numbers down to the second decimal place, Indonesian GDP growth figures matched analysts’ expectations with a remarkable degree of precision.  Other than that, the rest of what follows has not become outdated.

In the week that just ended, economic data from Australia and Korea stand out. In Australia, house prices slid 4.8% in the fourth quarter from a year ago. Building approvals were down 24.5% year to date in December. Australian economy is beginning to reap the whirlwind of its credit and housing boom just as the US and the UK did in 2008-09. The Reserve Bank of Australia meets this week and the market expects it cut the overnight cash rate down to 4.0% from 4.25%. We think so too. Speculators continue to be in love with the Australian dollar. They have failed to pay heed to domestic economic warning signals. They are bound to be wrong footed in the course of the year.

South Korean industrial production has been down in five of the last six months and it dropped 0.9% for the third month in a row in December. Consensus opinion had anticipated a bounce-back. That was not there. On top of that, Korean exports contracted for the first time in more than two years in January. Korean exports fell 6.6% in January based on provisional data. Therefore, one does not expect Korea to hike rates this week when the Bank of Korea meets to decide on monetary policy. Markets anticipate no change. A surprise rate cut should not be that much of a surprise, actually.

But, more than the implications for Korean monetary policy, what matters is the signal content of Korean IP and export data for the health of regional economies, particularly China’s. One can go a step further and reflect on the information content of Korean (and Taiwan) exports for global growth.

Singapore’s Purchasing Managers’ index dropped further to 48.7 from 49.5 in January. Singapore economy is cooling. There is no doubt about that. The question is how long it would take for it to register in the heads of property developers and speculators.

The week ahead sees the usual parade of Chinese macro data that would hit consensus estimates or vice-versa. Not that much meaning should be attached to them at any time but we should be doubly indifferent to the data this time. The early arrival of the Lunar New Year in January itself should further increase the noise-to-signal ratio in Chinese macro data. The translated article from China’s Economic Observer (courtesy of Paul Cavey of Macquarie Securities) on the breakneck speed of development in Pingtan in Fujian province is a reminder of the difficulty in rebalancing Chinese economy with its poor to non-existent economic and price signals. In any case, we will not hear either from analysts or from government officials on the difficulties faced by the Chinese economy. Expect mainstream economists to waste a lot of ink (and your time as well as theirs) in return for too little insight on the true state of the Chinese economy. Of course, that is business as usual.

Indonesia will report its fourth quarter GDP and GDP growth for the year 2011 this coming week. Bank Indonesia meets to decide on monetary policy. The policy rate should be left unchanged at 6.0% and there should be no special surprises in the GDP growth data either. Both the annual and the quarterly GDP growth figures should be slightly above 6%. Indonesia has the potential to do better and will do so in the years ahead. But then, asset prices already well and truly reflect that confidence or hope.

This post originally appeared at The Gold Standard and is posted with permission.

One Response to "The Korean Shocker"

  1. 2and20vision   February 10, 2012 at 4:51 pm

    The China data is undoubtedly of debatable consequence but today's import number was pretty terrible and says a lot about the fall-off in Australia, Korea, and other economies leveraged to China. With that, I'll throw my hat in the ring and add some more 'wasted ink' on China here:
    http://creditbubblebath.blogspot.com/2012/02/chin