Asia Week Ahead: Some Shoots On Second-Half Outlook

PMI data dominates

Around this time of the month, markets typically focus on purchasing managers index for the manufacturing and service sectors. Within these, China's PMI always steals the limelight but has been doing even more so since the onset of the trade war. However, we don’t think the upcoming Chinese PMI data will be telling us anything different from recent releases.

While the trade war continues to hurt exports and manufacturing, services activity is holding up well. Even if this gulf widens further, it will be increasingly difficult for the services sectors to remain afloat without eventually being dragged lower without support from exports and manufacturing.

On the other spectrum is India, where manufacturing activity is firmly on the growth trajectory reflected by the recent PMI well above the 50 threshold, however, service activity has been in the contracting territory with the PMI in June coming in at 49.6. This isn’t a good mix for the economy with services accounting for over 50% of GDP.

And there is this north-south divide as well – manufacturing PMIs for the majority of the south still in the expansionary zone, while in the north it seems to be contracting. But not all is bad in sub-50 countries. Malaysia stands out here. Despite weak PMI, Malaysia’s manufacturing sector is holding up relatively well on the back of the electronics-led export outperformance as is expected to be reinforced by June trade figures out next week.

Asian manufacturing PMI - Not everything gray is bad

(Click on image to enlarge)

Source: Bloomberg, ING

But hard data matters more

Having said all of the above, PMIs are still sentiment-driven soft economic indicators. Hard activity data matters more. Korea's trade figures for July will be setting up expectations for trade and manufacturing performance for the rest of the region.

Despite the deep export slump, Korea dodged recession with a pick-up in second-quarter GDP growth. Yet, we don’t see July trade figures calming nerves, especially with trade tensions with Japan clouding the prospects further. We expect a continued double-digit export decline in July, while weak domestic demand depresses imports and sustains wide trade surplus.

Hong Kong and Taiwan are next in line to report GDP data for 2Q19. Like Korea, the electronics slump has been hurting Taiwan quite a bit. Even if Taiwan’s exports posted positive growth in June, our Chinese economist warns against celebrating just yet. Indeed, she was right because subsequent export orders data for the month was still bad. As such, the consensus of 1.8% growth in Taiwan’s GDP is at risk of a downside surprise (ING forecast 1.4%).

Undoubtedly, Hong Kong’s economy has been hit hard by anti-government protests since late March, which could dent growth further below the 0.6% rate in 1Q19, which in itself was the slowest in a decade since the 2009 global financial crisis.

Asia Economic Calendar

Source: ING, Bloomberg, *GMT