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ECM’s First Quarter Asia Pacific (Developed) Economic Round Up Final Roundup
This is Epsilon Capital Management’s 2 Part Series on the Asia Pacific Economy for the first quarter of 2012. Now we cover three of the most important economies for the region, New Zealand, Hong Kong and Singapore.
New Zealand’s central bank said that the country’s economy, which was hit badly by a devastating earthquake in early 2011, is recovering at a much slower pace than it had predicted earlier. Alan Bollard, the governor of New Zealand’s central bank pointed out that a primary factor impeding growth in the country was pressure in the international economy arising from Europe’s debt crisis.
New Zealand’s exports to the European Union account for nearly 30% of the country’s economy.
On the other hand, the country’s currency, the New Zealand dollar, has appreciated substantially over the past three months, putting further pressure on its exports. The New Zealand dollar was the best performing currency among major developed nations in the world during the first three months of 2012 In fact, the strength of the domestic currency helped lower the cost of key imports like construction materials. The central bank also opined that the strong currency coupled with weak economic growth in the country could push inflation down to a 12-year low of 1.4% in 2012.
Despite slowing inflation, the central bank did not cut interest rates during its policy meeting in March, keeping the benchmark rate at 2.5%. The monetary authority said it expects reconstruction activity in the aftermath of the Christchurch earthquake to keep domestic demand intact. Further signs of increased household spending and rising consumer confidence were also reported as key reasons that interest rates were not cut during the March meeting. The consumer confidence index compiled by Westpac Banking Corp. inched up to 102.4 during the first quarter of 2012 from 101.3
in the fourth quarter of 2011.
While the long-term unemployment rate has hovered around 6.5% in New Zealand, the temporary demand for labor seems to be picking up. According to a report from ANZ National Bank, the number of advertisements for jobs in February jumped 5.3% from January levels.
New Zealand estimates its economy will grow 3.1% for the twelve months ending March 2013, faster than its earlier projection of 2.9%.
Hong Kong: Inflation gives in a bit as unemployment inches up
Like other countries in Asia, Hong Kong too faced a swing in economic data during the first three months of 2012. Inflation in the financial center shot up sharply during January primarily due to higher rentals and food prices. Consumer price inflation rose 6.7% keeping in line with the trend of ever-rising inflation since November 2010. Furthermore, January’s inflation was also blamed on the Lunar New Year, when the prices of most food items escalate.
Encouragingly, though, the pace of inflation cooled in February. Aided by a slight rise in unemployment and a slowing pace of private rental growth, inflation slid to 5.4%. The cost of renting houses jumped 9.2% while food and apparel costs crept up 5.4% during February. Hong Kong’s government also opined that inflation during the year will gradually ease, aided by a decline in commodities and slower growth across the globe.
On the output front, Hong Kong’s export markets, which showed signs of slowing in January, recovered some of the lost ground in February. During January, exports from Hong Kong declined almost 8.6%, primarily due to factory closures during the Chinese New Year vacation. In February, though, exports rebounded 14% to $33 billion. However, Hong Kong’s imports in recent months have surged on the back of rising commodity prices. With imports spiking almost 20.8% in February, the financial center’s trade deficit jumped. However, Hong Kong’s Financial Secretary, John Tsang, warned that the relatively slow pace of export growth could impede overall output during the year. In an interview to Bloomberg, Mr. Tsang cautioned that slowing exports could result in ‘negative growth’ during 2012.
Hong Kong currently expects its GDP growth to range between just 1% and 3% compared to 5% growth in 2011.
Singapore: Manufacturing growth pulls down industrial sector
Singapore’s industrial production during the first two months of 2012 witnessed significant ups and downs. During January, the city-state’s industrial production figures rose 2.3% powered by a 33% jump in pharmaceutical production during the month. However, industrial production figures declined 1.1% during February as electronics production tumbled substantially. Even though manufacturing output increased 12.1% in February, the figures were well below the 16.2% jump estimated by a group of economists surveyed by Bloomberg. A slowdown in the European Union was largely blamed for the slowing growth in manufacturing output.
Singapore also witnessed slowing inflation in the wake of a lesser-than expected industrial and manufacturing production. Singapore’s consumer price index in January rose at the pace of 4.8%, the slowest pace of growth in nearly eight months. In February, the pace of inflation fell further to 4.6%. The drop in inflation has been attributed to a seasonal decline in the cost of non-cooked food and vacation travel. But the fall in consumer price inflation was also accompanied by a slight dip in core inflation, which measures structural components like labor. Nonetheless, the Monetary Authority of Singapore still views the 3.0% core inflation as quite high. The cost of labor in Singapore has remained at elevated levels primarily due to curbs on immigrant labor from the neighboring countries.
Singapore’s property markets, on the other hand, have shown early indications of cooling down. The country’s realty sector, which consistently headed northwards for the good part of the past three years, slipped in March. Prices of private residential houses fell 0.1% during the three months ended March 2012. Prices of private residential properties in the central part of the city slipped 0.9% in the first quarter compared to a 0.5% growth in the last quarter of 2011. Property brokers in the region now expect Singapore’s property prices to fall by 8% to 10% in 2012 over the year-ago period, according to a report from Wall Street Journal. The slowdown in real estate prices has come after a prolonged effort by Singapore’s government to prevent a bubble in the sector. Singapore had raised down payment charges and certain duties for foreigners trying to buy property in the country.
The Singapore government now expects its economy to expand 1% to 3% in 2012 against a 2011 growth of 4.8%.
The Asia Pacific Region has always been an important indicator to what the rest of the global economies are facing. We will continue to have an interest in the Developed region as it takes a more prominent position in the global economy.
Epsilon Capital Management is an independent investment advisory firm which focuses on global equities and options markets. Our analytical tools, screening techniques, rigorous research methods and committed staff provide solid information to help our clients make the best possible investment decisions. All views, comments, statements and opinions are of the authors. For more information go to www.epsiloncapitalmanagement .com