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Asia likely to see disinflation in coming months: Nomura report

Asia is likely to witness disinflation, or a slower pace of inflation, in the coming months, driven by weaker underlying inflation momentum and helped by base effects, according to Japan-based global financial services group Nomura’s Asia Economic Monthly.

By mid-year, inflation momentum, as measured on a month-on-month (MoM), seasonally-adjusted basis, should be closer to central bank targets in most economies following the monetary tightening phase last year, it said.

Most Asian central banks are now in a policy pause phase and, if underlying inflation moderates accordingly, the window to monetary easing will open up later this year, it noted.

There are seven reasons why Nomura sees faster disinflation in Asia. First, Asia’s inflation is driven more by supply than demand-side factors. Lower oil and global food prices, abating currency depreciation pressures and the full normalisation of pandemic-driven supply chain bottlenecks point to easing supply-side pressures.

Nomura believes the lagged effects of these easing supply-side pressures will materialise in Asia’s inflation readings in coming months.

The second reason is base effects. Comparing this year’s inflation to last year’s high levels on a monthly basis gives rise to base effects that serve to dampen inflation in specific months.

The third is easing food and energy prices should lower headline and core inflation. In Asia’s emerging markets, food and fuel prices drive headline inflation and can spill into core inflation due to second-round effects. Lower food and energy prices should also curtail household inflation expectations.

The fourth is no wage-price spiral in Asia. Wage spikes caused by mass layoffs and early retirements in the United States are not evident in Asia, where labour markets are less flexible.

Instead, wage growth is starting to moderate, even in economies with tight labour markets like Singapore. Export and manufacturing slowdowns should spill into a weaker labour market and exert downward pressure on wage growth, especially for open economies in the region, Nomura noted.

The fifth reason is goods disinflation. Weaker goods demand and softening input costs will likely result in a slower rise in prices of core goods.

The sisth is likely moderation in services inflation. The post-pandemic release of pent-up demand for services has been exhausted. Moderating wage growth should soothe services inflation.

China’s unlikelihood to be a source of inflation is the last reason. China’s growth cycle is desynchronised from the rest of the world, and it is not a material source of inflation risk, either to itself or globally. China’s pent-up consumption demand from its reopening is likely to disappoint market expectations, the Nomura report added.

Overall, the company continues to see disinflation as a significant macro theme for the coming year. Inflation in economies such as Thailand, India and South Korea are projected to moderate to within the central banks’ target ranges ahead of schedule. By contrast, inflation in Singapore and the Philippines are set to fall more slowly.

The monetary policy tightening cycle is likely over in Asia, except for the Philippines, where it still expects two 25 basis points hikes in the second quarter.

The rest of Asia has entered a phase of monetary policy pause, though countries like India, Thailand and Malaysia have left the door open for further rate hikes.

As inflation momentum eases in the second half of 2023, Nomura expects central banks to prioritise limiting the downside risks to growth in their policies.

It expects South Korea and India to be the first to cut rates in August and October respectively, but it is possible that other Asian central banks may move sooner.

It is predicted by Japan-based financial services group Nomura that Asia will probably experience a decrease in inflation in the near future, supported by weaker inflation force and further aided by a base effect. Some of the factors behind this scenario include the initial levels of inflation, a decrease in food and energy prices, no increases in wages leading to price hikes, a reduction in goods prices, and the possibility of a reduction in services inflation.

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India-China trade falls 0.9% in H1 2023; 1st signs of slowdown in year

Bilateral trade between China and India showed the first signs of slowing down in years, falling by 0.9 per cent in the first half (H1) this year.

China’s exports to India in H1 2023 were worth $56.53 billion compared to $57.51 billion during the same period last year–a decline of 0.9 per cent, according to Chinese customs data.

India’s exports to China during the same period totalled $9.49 billion compared to $9.57 billion during the same period last year.

India-China trade touched an all-time high of $135.98 billion last year, overtaking the $125 billion mark a year earlier by registering an 8.4 per cent rise.

The Asian giant’s trade deficit in H1 2023 declined significantly to $47.04 compared to $67.08 billion during H1 last year. The trade deficit reached $101.02 billion in 2022, up by 45 per cent from $69.38 billion in 2021.

China’s total trade in H1 this year fell by nearly 5 per cent from a year earlier in dollar terms. While exports slipped 3.2 per cent, imports declined by 6.7 per cent.

Its exports fell by 12.4 per cent year on year in June this year amid weakening demand following rising interest rates by central banks to curb inflation, a news agency reported.

Fibre2Fashion News Desk (DS)

The trade between China and India displayed the first indications of a sluggish progression in recent years, diminishing by 0.9% in the first six months of this year. China’s exports to India decreased from $57.51 billion in the first half of 2022 to $56.53 billion in the same period of 2023. Meanwhile, India’s exports to China decreased from $9.57 billion to $9.49 billion.

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Asia-Pacific expected to contribute 70% to global growth in 2023: IMF

The International Monetary Fund (IMF) predicted a downturn in global growth to 2.8 per cent in 2023 from 3.4 per cent in 2022, with over 70 per cent expected to come from the Asia-Pacific region. High-frequency indicators show manufacturing weakness contrasting with resilient services across G20 countries and robust labour markets in advanced economies. Meanwhile, financial instabilities revealed by strict monetary policy need careful handling.

Though global headline inflation appears to have peaked and core inflation has somewhat eased, particularly in India, it remains significantly above central banks’ targets in many G20 countries. Policymakers have been warned against premature celebrations, as easing policy too soon could undo progress on inflation, according to an IMF blog titled ‘Weak Global Economy, High Inflation, and Rising Fragmentation Demand Strong G20 Action’ by Kristalina Georgieva.

Against this backdrop, a persistent monetary policy approach is needed until inflation is reliably reduced to target. Fiscal policy also has a role to play in supporting disinflation, rebuilding buffers, and enhancing debt sustainability. Meanwhile, consolidation efforts should protect growth-boosting investments wherever possible.

However, the medium-term economic outlook is not promising, with IMF projections for global growth over this period hovering around 3 per cent, considerably below the 2000-2019 historical average of 3.8 per cent. Economic fragmentation risks undermining growth and addressing global challenges, such as rising sovereign debt crises and the existential threat of climate change.

Significant progress has been made, as evidenced by the breakthrough on Zambia’s debt restructuring, a testament to international collaboration. The G20 also recently announced reaching its $100 billion target in special drawing rights (SDRs) pledges, which will be directed from wealthier to poorer nations, demonstrating international solidarity.

Despite these achievements, more support is required to confront the challenges. Climate change, high living costs, and high interest rates are causing disproportionate hardships, pushing more countries towards debt distress and threatening developmental prospects. Therefore, strong multilateral institutions, like the World Bank and the IMF, are crucial in providing this support.

As we face a fresh set of transitions, the IMF pledges to continue to adapt and respond with agility through timely policy changes and stronger resources. Prioritising a quick and successful completion of the 16th quota review and replenishing the IMF’s concessional resources for vulnerable nations are fundamental steps towards ensuring a robust global finance safety net, added the blog.

Strong leadership from the G20 is required to guarantee an international financial architecture that is fit for purpose. A global response of a scale commensurate with the world’s challenges is paramount to ensure all nations are placed back on a sustainable path to growth and prosperity.

Fibre2Fashion News Desk (NB)

The International Monetary Fund anticipates a decrease in worldwide economic expansion to reach 2.8 percent by 2023, largely thanks to outcomes in the Asia-Pacific region. G20 countries are displaying a strong service sector and labor markets despite adversity in the manufacturing sector. Given the current economic ambiguities, working together globally is essential, such as Zambia’s accomplishment in dealing with their debt and the G20 alliance agreeing to donate $100 bn in Special Drawing Rights.

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Euro area & EU’s industrial production sees modest rise in May 2023

Euro area and European Union’s (EU) industrial production saw a modest increase in May 2023, according to Eurostat, the statistical office of the EU. Euro area saw a seasonally adjusted rise of 0.2 per cent, while the EU observed a 0.1 per cent increase compared with April 2023. The previous month saw more significant growth, with industrial production increasing by 1 per cent in the euro area and 0.6 per cent in the EU.

However, when compared to the previous year, industrial production declined in May 2023, dropping by 2.2 per cent in the euro area and 1.8 per cent in the EU.

Breaking down these figures by category, the euro area experienced a growth in the production of intermediate and durable consumer goods by 0.5 per cent, and non-durable consumer goods by 0.3 per cent. However, there was a 1.1 per cent decrease in energy production. Similar trends were observed in the EU, with energy production seeing the largest decline at 1.8 per cent, as per Eurostat.

Among the member states, Slovenia recorded the highest monthly increase in industrial production at 7.9 per cent, followed by Croatia at 4.3 per cent, and Slovakia and Finland, both at 2.5 per cent. Conversely, Ireland saw the most significant decrease at 4.9 per cent, with Lithuania declining by 2.8 per cent, and Romania and Belgium both recording a 1.2 per cent drop.

On a year-on-year basis, energy production in the euro area and the EU fell by 6.2 per cent and 7.5 per cent respectively. Durable consumer goods saw a decrease in production as well, with the euro area and EU recording drops of 5.0 per cent and 6.4 per cent respectively.

Finally, among member states, Ireland registered the largest annual decrease in industrial production at 16.2 per cent, followed by Estonia at 12.8 per cent and Bulgaria at 11 per cent. In contrast, Malta, Denmark, and France witnessed the highest increases at 12.2 per cent, 7.8 per cent, and 2.9 per cent respectively.

Fibre2Fashion News Desk (DP)

Eurostat reported that in May 2023, industrial production shifted up slightly in the euro region and the entire EU, in comparison to the reached result in April. Year over year, industrial output decreased by 2.2% in the euro zone and by 1.8% in the European Union. The largest reduction was seen in energy production. Slovenia, Croatia, and Malta saw the greatest expansion among the participating countries.

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UK announces up to ?25 mn in funding to back economic growth in ASEAN

UK foreign secretary James Spencer Cleverly recently announced up to ?25 million in funding to support economic growth of members of the Association of Southeast Asian Nations (ASEAN) and reduce their poverty, by bringing UK expertise in trade, regulation and financial services to the region over the next five years.

He was visiting Jakarta to meet ASEAN partners to advance cooperation on the shared priorities of security, stability and prosperity.

Total UK-ASEAN trade in goods and services was worth ?46.5 billion at the end of 2022.

Later this month, the United Kingdom will begin its formal accession to the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTPP), further strengthening British trade and investment links in the region, an official release said.

“The UK and ASEAN are working together to deliver the Plan of Action 2022 to 2026 to improve lives across the region, such as ensuring girls across southeast Asia can access quality education. This is in addition to UK work in the wider Indo-Pacific, such as the Climate Action for a Resilient Asia programme, which is upgrading homes and infrastructure to withstand the impacts of climate change,” Cleverly said ahead of the visit.

Fibre2Fashion News Desk (DS)

80 million in aid money for the Rohingya people in Bangladesh

UK foreign secretary James Spencer Cleverly declared that around ?80 million will be contributed to the Rohingya people in Bangladesh as aid. A sum of 25 million dollars will be invested over the next five years to facilitate the development of ASEAN countries through trade, regulation and financial assistance, resulting in economic growth and the alleviation of poverty. The UK will initiate its membership of the CPTPP at the end of this month, further developing its connections with the area.

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Swiss firm EMS’ net sales at CHF 1,183 mn in H1 FY23

Swiss-based EMS Group, a leading firm in high performance polymers and specialty chemicals, has reported net sales of Swiss franc (CHF) 1,183 million in the first half (H1) of fiscal 2023 (FY23), 7.9 per cent down from CHF 1,284 million the previous year. This represented a 1.9 per cent decrease in local currency terms.

The net operating income (EBIT) in H1 FY23 was CHF 280 million, compared to CHF 324 million during the same period the previous year, the company said in a press release.

Despite these setbacks, due to its robust positioning in the specialty segment and decisive actions, EMS succeeded in maintaining an EBITDA margin of 25.9 per cent, though lower than the previous year’s 27.5 per cent.

The company’s H1 FY23 EBIT margin reached 23.7 per cent, compared to 25.2 per cent the previous year. The operating cash flow (EBITDA) came to CHF 306 million, a drop from the previous year’s figure of CHF 354 million.

EMS forecasts net sales and net operating income (EBIT) for the entirety of 2023 to fall below the previous year’s levels.

Fibre2Fashion News Desk (DP)

For the first six months of FY23, EMS Group saw a decrease in net sales and operating income, indicating figures of CHF 1,183 million and CHF 280 million, respectively. Despite sales dropping and forex issues, the EBITDA margin was a notable 25.9%. The company anticipates that their sales and earnings before interest and taxes for the financial year of 2023 will be lower than they were in 2022.