In the first part of our report we will look across the region as a whole and more specifically at Japan and Australia.
Developed Asia Pacific: Economic Review 1st Quarter 2012
Asia Pacific economies see an upturn amidst volatile oil prices
Developed Asia Pacific economies showed more promise in the first three months of 2012 compared to the gloomy scenario witnessed during the last quarter of 2011. A marked upturn in the U.S. economy along with receding fears about the debt crisis in Europe gave a fillip to export-based economies in Asia such as Japan and Singapore. What’s more, inflation in most of the developed Asia Pacific economies became less of a concern during the first two months of 2012, with Singapore, Hong Kong and New Zealand all reporting subdued inflation. On the other hand, concerns over a slowdown in China, Asia’ largest economy, has caused worries for commodity exporters. Australia, abig exporter of energy-based commodities like coal, saw its jobless numbers inch up during February. Australia was one of the few countries in the region that reported a small drop in its consumer confidence index during the initial months of 2012. However, domestic demand in countries like Japan and New Zealand remained healthy. Although Japan is mulling a hike in sales taxes in the coming months, Japanese consumers have thronged shopping malls in droves. Developed Asia Pacific economies that are enjoying the sunny weather now fear that a sharp jump in oil prices could stoke inflation and make things too hot to handle.
Japan: Declining yen and rising exports give a much-needed fillip to economy
Japan’s economy, which witnessed damage not only from a devastating earthquake, but also a rising currency, and slowing exports through 2011, has started showing more promise since the beginning of 2012.
First of all, Japan reported that its economy was not as badly hit as reported earlier. In February 2012, the country said that its GDP for the three months ended December 2011 had shrunk at an annualized pace of 2.4%. The country cited weakening exports and problems associated with supply chain disruption arising from the Thailand floods as the reasons behind the contraction in GDP. But during March, Japan revised its GDP data and reported that the economy contracted only by 0.7%. The revised data also showed that capital spending during the fourth quarter rose by the fastest pace in almost five years.
Japan is now doing everything it can to maintain the momentum. In February, the country boosted its stimulus package by nearly 2.5 trillion yen ($31 billion) in addition to a massive monetary stimulus. The monetary easing also has helped drive down the value of the yen, which hit a post war high of 75.3 per U.S. dollar in October. The yen weakened to 82 per dollar in late March. The gradual weakening of the yen has brought cheer to Japan’s manufacturers. Machinery orders have generally been on the rise in Japan since then. A key indicator of future capital spending rose 3.4% during January this year, a sharp upturn from a decline of 7% in December.
Furthermore, an improvement in global trade prospects during the first two months of 2012 gave a fillip to Japan’s exports. Exports during February fell only 2.7% against expectations of a 6.5% decline, according to economists surveyed by Bloomberg. Exports were supported by a recovery in the international markets and a sharp fall in the yen.
The sunny weather in the export industry in turn passed on the benefits to the labor market. Job prospects for employees also improved during January. A Labor Ministry report showed that there were 73 jobs for every 100 applicants during the month of January, the best number in almost three years. With increased rebuilding and reconstruction efforts, the unemployment rate in the tsunami-devastated prefectures also improved to 4.3%, now below the national average of4.6%. This improvement in the labor market has helped Japanese retailers boost their sales. During February, retail sales in Japan jumped 3.5%, the biggest monthly advance since August 2010. Sales of durable goods like cars also advanced during the quarter.
Despite some headwinds like power shortages and a looming deflationary scenario, economists surveyed by Bloomberg expect Japan to grow by around 1.5% during 2012.
Australia: Economy takes a hit on strong currency despite help from mining
Australia’s economy sent mixed signals during the first three months of 2012. While the risks from the sovereign debt crisis emanating from the European Union receded somewhat in the months of January and February, slowing growth in China presented challenges to Australia’s resource-based industries such as coal mining. Meanwhile, the strong Australian dollar and a flood in Queensland in February continued to hamper Australia’s export and agricultural industries.
With this, many economic indicators in Australia see-sawed through the three months ended March 2012. In January, both the consumer confidence index and retail sales inched up on the back of strong employment data. Retail sales, which had fallen 0.1% during December in the wake of low consumer confidence, climbed 0.3% in January. Further, a twenty-five basis point cut in interest rates during November and December from the country’s central bank kept spending levels healthy. Adding to this, a boost in the labor market stoked the momentum during the beginning days of the 2012. In January, Australia’s payrolls jumped by nearly 46,300, a 14-month high figure surpassing all expectations. Even economists surveyed by Bloomberg had anticipated that the payrolls would spike by only 10,000. Queensland and Western Australia, the two states that between them share some of Australia’s richest energy and mining reserves, put up a stellar growth in employment, accounting for nearly 88% of Australia’s new jobs created in January.
Nonetheless, the uptick in economic data did not last long. Starting in February, the momentum in the economy slowed considerably. With a lukewarm housing market, consumer confidence dipped considerably. The consumer sentiment index compiled by Melbourne Institute Survey and Westpac Banking Corporation dropped 5% to 96.1 in March, a three-month low.
Employment figures, which had risen nicely in January also turned sour. Australian employers unexpectedly trimmed their payrolls by 15,400 in February. The jobless rate in the nation crept up to 5.2% in February from 5.1%. Although mining jobs did rise, construction and manufacturing jobs fell sharply during the month.
Meanwhile, Australia’s currency, which has risen sharply over the past year, has put pressure on many industries such as wine making, tourism and manufacturing. In Queensland, a major tourist attraction in Australia, hotel occupancy rates have consistently trended downwards over the past couple of months. Victoria, an Australian state that is a major manufacturing hub, has also taken a substantial hit. Car makers Toyota and GM trimmed their Australian workforce in February as a strong currency continued to hamper business. Even banks in Australia have cut jobs due to poor demand for loans and other allied services.
Australia’s central bank, which had paused interest rate cuts since the beginning of 2012, revised its growth expectations downward to 3.5% in 2012 from its earlier forecast of 4%. It also predicted lower consumer price growth at 3% for 2012 from 3.25% earlier.
Our second part to this series will cover New Zealand, Hong Kong and Singapore. These 3 economies are of the upmost importance to the region’s economy as a whole therefore require specific attention.