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Categories
| DBS Group: Safe to say Asia hit bottom in 1Q09 |
| Business & Market 2009 | |||
| Written by DBS Group Research | |||
| Monday, 11 May 2009 10:57 | |||
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Why is that important? It says the sharp upward surge (16% month-on-month (m-o-m), seasonally adjusted) in February exports was not a statistical distortion arising out of Chinese New Year adjustment problems — it was for real (Chart 1). (DBS Group’s Dashboard is a two-dial gauge of where Asia sits in the economic cycle. It combines exports (from the demand side) and industrial production (from the supply-side) of Asia’s economies to offer a quick assessment of whether Asia has moved closer to or further away from recovery.) Better yet, April exports from Korea and Taiwan — Asia’s first two countries to report exports — extended the run upward, rising by another 4% (m-o-m, sa) on average (Chart 2). Taiwan’s exports to China rose by another 7% in April (from March; we will always talk/write in terms of m-o-m changes because that is the only way to see the turn as it happens. Looking at year-on-year changes will almost guarantee that you miss the turn every time).  That rise in exports to China is key because that is where the collapse took place (Chart 3). The drop in Asia’s exports was due mainly to a set of one-off factors (rather) than to fundamental demand weakness and, therefore, was expected to be short-    lived. The rise in exports since January is consistent with this analysis and we expect the new trend northward will continue. At current rates, the recovery would more than qualify for the “V-shaped” label. The turn in industrial production (IP) continues to lag the turn in exports. This is normal. Producers will initially meet rising demand out of inventories. Only when the shelves are bare or when they become convinced that rising demand will persist does production get ramped up. But production has turned if a bit more tentatively than exports. Since the last Dashboard, Thailand and Korea have weighed in with IP releases averaging 3.7%. Combined with the other Asia9 countries, industrial production is up some 5% since January 2009, or 7% excluding China. Korea and Taiwan are leading the rise in Asia with advances of 12%-12.5% since January. (The Asia9 countries are China, Hong Kong, Taiwan, Korea, Singapore, Malaysia, India, Thailand and the Philippines). The view It appears increasingly safe to say that Asia hit bottom in January 2009. It certainly has moved north since then and we expect it will continue to do so. Continued movement up the cyclical curve gives us confidence that our forecasts of a bottom in Asia in 1Q09 are on track. In terms of the stylised cycle, Asia has moved to Point Y from Point X the last week of April, on its way up the curve to Point C (Chart 4) After falling by some 10% (quarter-on-quarter, seasonally adjusted annual rate) on average in 4Q08, GDP, we expect GDP in 1Q09 fell by about 3%-4% in the Asia9 and that it will grow by 4%-5% in the second quarter of the year. Nascent growth should solidify in the second half of 2009 as fiscal stimulus in many of the world’s economies begins to take hold. Upcoming Next week, trade and IP data from China will be key. Malaysia and India will release March IP. This article appeared in The Edge Financial Daily, May 11, 2009.
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