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Japanese government downgrades economic growth forecast for current fiscal year

  
Analysis, Economy

A foreshadow to the BOJ meeting tomorrow perhaps?

Japan
  • FY 2019 real GDP growth estimate lowered from 1.3% to 0.9%
  • FY 2020 real GDP growth estimate of 1.2%
  • FY 2019 consumer inflation estimate of 0.7%
  • FY 2020 consumer inflation estimate of 0.8%
The government cites weaker exports i.e. weakening global demand as the main reason for the downgrade and says that the impact from the planned sales tax hike in October may also further weigh on growth in the current fiscal year.
They estimate export growth to be at +0.5% now compared to the +3.0% assessment back in January. That would mark the weakest growth in exports since fiscal year 2012.

China industrial profits June YoY fall -3.1%

  
Analysis, Economy

Last month China industrial profits rose 1.1%

Over the weekend, China industrial profits for June YoY showed a decline of -3.1% vs 1.1% in May. The fall in profits is indicative of headwinds faced as a result of the ongoing trade war with the US and global growth slowing.
It may also be indicative of the China companies eating the costs of the tariffs imposed on China exports to the US in order to keep market share.
Last month China industrial profits rose 1.1%
The Manufacturing and Non-manufacturing PMI data for July will be released on Wednesday night (Thursday in China) with Manufacturing PMI expected to rise modestly to 49.6 from 49.4. A reading below the 50 level is a sign of manufacturing contraction. The Non-manufacturing PMI index is expected to dip to 54.0 from 54.2 in June.
The Caixin PMI manufacturing dates will be released on Thursday (Friday in China) with the expectations for a reading of 49.6 vs 49.4 last month.

Surging household debt clouds Asia’s growth outlook

  
Analysis, Economy
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The rapid expansion of household debt in emerging Asian countries, particularly China, has become a risk to the global economy.

In Thailand and Malaysia, debt has ballooned due to booms in the auto and housing markets, and the growing repayment burden has dampened consumer sentiment. In China, household debt as a percentage of nominal GDP is now over 50%. Countries such as Thailand have begun curbing their consumption in response to rising debt levels.

The U.S. Federal Reserve is expected to cut interest rates at the end of this month. Emerging economies also have room for interest rate cuts, which would boost growth in the short run but could deepen the scars from indebtedness over the long term.

Somprawin Manprasert, chief economist at Bank of Ayudhya, pointed out that household debts have ballooned as a result of incentives for the purchase of cars and other items introduced by the Thai government in 2011. This is a structural factor that will weigh on future consumption, Somprawin said.

Thailand’s household debt ratio is close to 70%. That is higher than in Japan and other advanced economies, which have ratios of about 58%, and well above that of the eurozone. The main reason is auto loans. To support the car industry, the Thai government introduced tax incentives to encourage purchases, which took off in 2012. As a result of the higher debt load, personal consumption has been sluggish and inflation has been weak.

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US Q2 advance GDP +2.1% vs +1.8% expected

  
Analysis, Economy

Highlights of the second quarter GDP report

  • Q1 GDP was 3.1% q/q annualized
  • Q4 was 2.2% (revised to 1.1%)
  • GDP y/y +2.3% vs +2.7% prior
  • 2018 GDP unrevised at +2.9%
Details:
  • Personal consumption 4.3% vs 4.0% exp (fastest since Q2 2017)
  • Prior personal consumption +0.9% (revised to +1.1%)
  • Consumer spending on durables +12.9% vs +0.3% prior
  • Business investment -0.6% vs +4.4% prior (first contraction since 2016)
  • Home investment -1.5% (6th consecutive contraction)
  • Exports -5.2%
  • Imports +0.1%

Erdogan: Interest rate cut is not enough, will continue until year-end

  
Analysis, Economy
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Turkish president Erdogan says they need to continue cutting rates gradually

  • Says that inflation will come down when interest rate is lower
  • Says that he has been defending that 24% interest rate is very high for Turkey
Who needs a central bank when you can get first-hand direction of where (and by how much) rates are going from the president himself? So much for central bank independence, they might as well just officially make him the new governor at this point.
Trump is probably green with envy though, wishing he could do the same with the Fed. 😉
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