Copyright E. I. du Pont de Nemours and Company. All rights reserved. Distribution, reproduction or copying of this copyrighted work without express written permission of DuPont is prohibited. Asia/Pacific Economic Overview Robert C. Fry, Jr., Ph.D. DuPont Economist s Office August, Asian manufacturing continues to stagnate, held down by the impact of the European recession on Asian exports. The most recent data for industrial production was below year-earlier levels in Japan, Thailand, Taiwan, and India, and just slightly above them in Korea, Indonesia, and the Philippines. In China, the yearover-year growth rate of Value Added of Industry slowed from 1.1% in June to 9.% in July, and these official data significantly overstate recent growth. The HSBC purchasing managers index for China points to declining activity in manufacturing. 1 1 : Asia =, Seasonally Adjusted Total industrial production in China and Indonesia, manufacturing elsewhere. *Data seasonally adjusted by this office. asia Japan Taiwan* Korea China* India* Indonesia* 7 9 1 1 Motor vehicle production started the year strong in China, Japan, and Korea, but has failed to maintain the upward momentum. Still, Asian motor vehicle production is expected to be up about 9% in, mostly due to the recovery of Japanese production from last year s earthquake and tsunami. Leading indicators for Korea and Taiwan have continued to rise in recent months, suggesting that growth could be poised to accelerate, but leading indicators for Japan fell sharply in April and May, and China s Leading Macro-Economic Climate Index has fallen for five consecutive months, through June, and is at its lowest level since February 9. in China rose 1.% (seasonally adjusted) in the second quarter, up from a downwardly revised 1.% in the first quarter. GDP was up 7.% year-over-year, the slowest year-over-year growth rate since 9. Annual GDP growth is expected to slow from 9.% in to 7.7% in. Annual (reported) growth in industrial production is expected to slow from.7% in to 9.% in and to stay near that rate in as China shifts to a permanently lower growth rate. in Japan rose.3% (1.% annual rate) in the second quarter after growing 1.3% in the first quarter. It was the fourth straight quarterly increase and brought the year-over-year growth rate up to 3.%. Annual GDP is expected to rise.% in after declining.7% in. Growth is expected to slow to 1.3% in. Industrial production is expected to grow just 1.7% in. Excluding Japan and China, real GDP in the Asia/Pacific region is expected to rise about % in, down from.% in. for the entire Asia/Pacific region is expected to rise.% in, up from % in due to recovery in Japan. Risks are to the down side. The DuPont Oval Logo and The miracles of science are registered trademarks of E. I. du Pont de Nemours and Company.
GDP Growth and Business Background The Asia/Pacific region is by far the most populous in the world, accounting for about % of total global population. Japan s population has begun a decline that is projected to accelerate over the next decade. This will push Japan s longterm potential growth rate for GDP well below 1% before the end of the decade. China s working age population will begin to shrink within a few years, limiting growth. Its total population is projected to peak in. India s population is expected to surpass China s by. Asia/Pacific Population Millions Source: Global Insight np_ap 9 9 Japan (Left) China (Right) India (Right) Other Asia/Pacific (Right) 1 3 1 1 3 The Asia/Pacific region accounts for more than a quarter of global GDP. At current exchange rates, China s economy surpassed Japan s as the largest economy in the region in. In purchasing power parity terms, China surpassed Japan about a decade ago. (The chart uses exchange rates, so does not show China surpassing Japan until.).... 1...3 9 Asia/Pacific Trillion US $ Source: Global Insight 9 1.... Japan China 1. India Korea. Other.3 3 3 In per capita terms, Japan is among the richest countries in the world. Korea has quadrupled its real per capita income in the last years.. 3. 1. Asia/Pacific Per Capita Thousand US$ Source: Global Insight. 3. 1. Despite their rapid growth rates, China and India will not reach developed country standards of living in the next several decades, but hundreds of millions of their citizens will reach middle-class status.... 1...3 9 9 1.. Japan. China India 1. Korea. Other.3 3 3
Key Global Markets Semiconductor shipments are a good proxy for demand for electronic materials; they closely track silicon wafer area. Semiconductor shipments to Asia/Pacific ex Japan recovered in the second quarter after falling in the first quarter. 1 Semiconductor Shipments Billion US $, Annual Rate, 3-Month Moving Average 1 Asia/Pacific shipments were up 1% yearover-year in the three months ending in June, the first time they were above yearearlier levels since last November. Global semiconductor shipments were down %. 9 9 Asia/Pacific ex Japan Japan Americas Europe Global motor vehicle production rose just 3.% in after rising more than % in. Production is expected to rise about % in, with increases in Asia and North America more than offsetting a decline in Europe. Production is expected to grow just % in. Production in Asia declined slightly in after rising 9% in. Production is expected to rise about 9% in, but less than % in. Asia is expected to account for most of the growth in global motor vehicle production over the next decade. Motor vehicle production in Asia declined in because the March earthquake and tsunami disrupted Japanese production and because growth slowed sharply in China. Production is being temporarily boosted this year to make up for last year s lost production. 3 mvbyreg 3 3 1 Motor Vehicle Production: By Region Millions Source: IHS Global Insight Asia Europe North America South America MEA Motor Vehicle Production: Asia Millions Source: IHS Global Insight Japan China Korea India Other Asia 1 1 1 3 3 3 1 Over the next decade, most growth in motor vehicle production in Asia is expected to be in China, with significant growth in India as well. Production is expected to remain essentially flat in Korea and to decline in Japan. mvasia 1 1 1 3
Japan in Japan rose.3% (1.% annual rate) in the second quarter after growing 1.3% in the first quarter. It was the fourth straight quarterly increase and brought the year-over-year growth rate up to 3.%. Annual real GDP is expected to rise.% in after declining.7% in. Growth is expected to slow to 1.3% in. Industrial production is expected to grow 1.7% in much less than previously forecast -- after declining.3% in. 3 1 - - -1 - - -3-3 Japan GDP and gdpfcjapq 1 3 7 9 3 1 - - -1 - - -3-3 Industrial production in Japanese manufacturing has stagnated without fully recovering from the impact of last year s earthquake and tsunami. Production was down.1% year-over-year in June and down % from the post-recession high reached in February. Japan s leading diffusion index, which measures the percentage of leading indicators sending positive signals, dropped from 9.9 in March to just in May. It recovered to 3 in June, still well below the neutral level of. Manufacturing Production: Japan Diffusion Index, 3mma, 3mma 3 19- Correlation =.7 9 3 7 1 - - 3-1 - Production (Right) - Leading Index, 7 months prior (Left) -3 m1qjmf -3 Japanese vehicle production has rolled over recently after a strong rebound from the shutdowns caused by the March earthquake and tsunami. Sales, which are back to pre-recession levels, have flattened but have not turned down. 1 Japanese Motor Vehicle Production & Sales Millions, Seasonally Adjusted Annual Rate, Smoothed Production Sales 1 Annual vehicle production, which fell nearly % in because of the March earthquake and tsunami, is expected to rise by more than % in. Production is expected to decline significantly in and to remain flat over the remainder of the decade. m1qjau
Japan The Japanese Yen remains near last year s record high versus the dollar. (Declining line on chart means stronger yen, weaker dollar.) The strong yen reduces the profitability and competitiveness of Japanese exporters. In particular, it is causing Japanese motor vehicle manufacturers to increase production outside of Japan. This will limit the recovery in motor vehicle production and prevent any further growth after the recovery from the earthquake and tsunami. 1 1 1 1 9 yen 7 9 Japanese Yen per US Dollar 9 1 1 1 1 9 7 Japan s inflation rate, as measured by the year-over-year change in the consumer price index, fell back below zero in June. The Bank of Japan continues to pursue what is essentially a zero-interest-rate policy. - Japan Interest Rates and Inflation Percent/ Long-Term Bond Yield Overnight Interest Rate Consumer Price Index - Japanese electronics manufacturers have been losing market share to Korea companies like Samsung in recent years. Consequently, production of electrical machinery (includes electronics) in Japan is back to levels first reached in 1. Despite the share gains, production of electrical equipment in Korea declined from late to early, but has turned up in recent months. Comparable data aren t published for China, but data for micro-computer equipment show a 19% year-over-year decline in July. - 9 1 1 9 7 m1ribbgl 9 : Electrical & Electronic = m1qjeya 1 3 7 Japan (Electrical Machinery) Korea (Electrical Equipment) 9-1 1 9 7
China in China rose 1.% (seasonally adjusted) in the second quarter, up from a downwardly revised 1.% in the first quarter. GDP was up 7.% year-overyear, the slowest growth rate since 9. Annual GDP growth is expected to slow from 9.% in to 7.7% in. The slowdown in China is partly a cyclical event and partly a structural shift to a permanently lower growth rate. Industrial production was up just 9.% year-over-year in July, the slowest yearover-year growth since May 9. Reported growth is expected to slow from.7% in to 9.% in and to stay near that rate in. Official data likely overstate growth. An index based on production of major products shows more volatility than official data and a much bigger recent decline in year-over-year growth. The new orders index of the Chinese PMI (purchasing managers index) has been below the neutral level of for three consecutive months, standing at 9. in July. The new orders index from a competing PMI published by HSBC fell to a preliminary. in August. (The HSBC survey includes more small exporters.) Motor vehicle production in China fell sharply in March and April as parts supplies were disrupted by the earthquake and tsunami in Japan. Production has recovered since and was up % year-over-year in July. Annual vehicle production, which grew % in 9 and another 3% in, rose just 1.% in. Production is expected to rise by about % in and % in, but the ongoing slowdown in China calls that forecast into question. 1 3 China GDP and, Quarterly Data - - -3 1 1 1 gdpfcchiq 1 3 7 China Change/ chinapmiip3 7 9 9 Production of major products (Right) PMI New Orders Index, 1 month prior (Left) - Correlation =.3 Chinese Motor Vehicle Production & Sales Millions, Seasonally Adjusted Annual Rate 9 9 Production Sales m9qjau 1 3 - - 1 1 1
China The Chinese government broke the peg between the Chinese Yuan and the U.S. dollar in June and tied the Yuan to a basket of foreign currencies. Chinese Yuan per U.S. Dollar.... The Yuan appreciated slowly after the peg was broken, but the appreciation has reversed this year. China will be reluctant to allow further appreciation of the Yuan until growth picks up. Depreciation is more likely near-term. 7. 7... yuan 7 9 7. 7... Inflation, as measured by the year-overyear change in the Consumer Price Index, rose to.% in July, but was down to 1.% in July. China aims to keep inflation at or below 3%. Low inflation gives the People s Bank of China the flexibility to loosen monetary policy by cutting reserve requirements, lowering interest rates, or relaxing restrictions on borrowing. However, fear of igniting another housing bubble could limit such efforts to stimulate growth. 3 1 China Interest Rates and Inflation Percent/ m9r - 9 9 Long-Term Lending Rate 1-Year Lending Rate Consumer Price Index 3 1 - China s trade surplus with the United States continues to set new records. China runs a trade deficit with the rest of the world. Chinese Trade Balance Billion US $, -Month Moving Sum Note: These are Chinese data. US data show a much larger surplus with the US. Year-over-year growth in Chinese exports fell to just 1.% in July, down from 3.% in March. Import growth, which stood at 3.1% last August, was just.7% in July and could fall below zero in August. 1 - - 9 m9vtgtx With United States With Rest of World Yuan devalued and pegged to $ $ peg broken 1 - - 7
South Korea in South Korea grew.% (1.% annual rate) in the second quarter, after growing.9% in the first quarter. Year-over-year growth slowed from.9% to.%. Annual growth in real GDP, which slowed from.3% in to 3.% in, is expected to slow further to.3% in and 1.9% in. Annual growth in industrial production, which slowed from 1.% in to.9% in, is expected to slow to.% in and to rise to just.% in. 3 3 1 - - -1 - Korea GDP and 1 3 7 9 3 3 1 - - -1 - Industrial production in Korean manufacturing was slightly lower in June than it was in January. Year-over-year growth was down to just 1.% in June. Korea s leading index leads industrial production in Korean manufacturing by three months, but it tends to lead global industrial production by about seven months. It rose for a ninth straight month in June and its year-over-year growth rate has risen from.3% in September to.% in June. 1 : Korea Production, Manufacturing (Right) Leading Index, 3 months prior (Left) mqjmf 19- Correlation =.77-3 - - -3 Korea is Asia s third largest motor vehicle producer, behind China and Japan. Korean motor vehicle production has declined this year. (The chart overstates production early in the year because of a bad seasonal adjustment factor for February.) Production has been below year-earlier levels for three straight months and was down 9.3% year-overyear in July. Annual production rose 9% in after s % rise. Production is expected to be essentially flat in and to decline in. 3 1 Korean Motor Vehicle Production & Sales Millions, Seasonally Adjusted Annual Rate, 3-Month Average 9 9 Production Sales mqjau 3 1
South Korea After hitting a -year high in late 7, the Korean Won depreciated sharply versus the U.S. dollar until March 9, falling to levels reached only during the Asian currency crisis of 17-. The Won generally appreciated against the dollar from March 9 until August, but has strengthened slightly since then. 1 1 1 Korean Won per US Dollar 1 1 1 won 9 9 Inflation, as measured by the year-overyear change in the consumer price index, has fallen from.7% in August to just 1.% in July. The Bank of Korea cut short-term interest rates in July in response to slow growth and declining inflation. 1 Korea Interest Rates and Inflation Percent/ Corporate Bond Yield Overnight Interest Rate Consumer Price Index 1 mribbc 9 9 The Korean Stock Price Index (KOSPI) is often regarded as a leading indicator for the global economy. The KOSPI fell more than % from its May high to its late September low. Since then, it has traded in a fairly narrow range and is signaling neither accelerating growth nor severe recession. 1 Korea Stock Price Index January, 197 = 1 dpiset 9 9 9
India in India was up.% from year-earlier levels in the first quarter. This was the slowest year-over-year growth rate since the first quarter of 9. Annual GDP growth slowed from 9.% in to.9% in and is expected to slow further to % in before accelerating to 7% in. Industrial production in Indian manufacturing was down.7% year-overyear in the second quarter. It is expected to be up % for the year after rising.% in. Growth of.7% is expected in. The Reserve Bank of India raised the repo rate, its policy lending rate, repeatedly in and in an effort to bring down inflation. 1 - - 1 India GDP and 1 3 7 India Interest Rates and Inflation Percent/ Prime Lending Rate Repo Rate Consumer Price Index 9 1 - - 1 Inflation fell sharply in, but has rebounded this year. Despite the rebound in inflation, the Reserve Bank of India has cut the repo rate in response to slow growth, but further stimulus could be limited by the stubbornly high inflation rate and depreciating currency. m3ricpr The Indian Rupee, which appreciated versus the U.S. dollar from early 9 to mid-, has recently fallen to all-time lows. The sharp depreciation in the Rupee since mid- has ended an unprecedented -year period of relative stability, and could mark a return to the historical pattern where the Rupee consistently lost value versus the dollar. Indian Rupee per US Dollar 3 3 1 9 9 rupee 1
Taiwan in Taiwan was down.% year-over-year in second quarter, the first decline since the third quarter of 9. (Taiwan does not publish seasonally adjusted data). Annual GDP growth, which slowed from.7% in to.% in, is expected to slow to just 1.% in, with growth of 3.7% expected for. 3 1 - -1 - -3 Taiwan GDP and, Quarterly Data 1 3 7 9 3 1 - -1 - -3 Industrial production in manufacturing was down.3% year-over-year in July after being down 1.% for the second quarter as a whole. Data seasonally adjusted by this office indicate that an apparent strengthening in the first five months of the year faded in June. Taiwan s leading index hit bottom in August and has now risen for straight months. 3 3 1 - - -1 - : Taiwan, 3-Month Moving Average mqjmf, Manufacturing (Right) Leading Indicator, 1 month prior (Left) 19- Correlation =. - - The New Taiwan Dollar has traded in a narrow range versus the U.S. dollar this year. It remains near its strongest value versus the dollar since the NTD collapsed during the Asian Currency Crisis of 17. New Taiwan Dollars per US Dollar 3 3 3 3 3 3 3 3 mrex 9 9
Australia in Australia grew 1.3% (.3% annual rate) in the first quarter. Yearover-year growth rose to.3%. Annual GDP, which rose.% in, rose.1% in. Growth of 3.3% is expected in, with.% growth expected for. Australia GDP and, Quarterly Data Industrial production rose.% in the first quarter. Year-over-year growth rose to.7%, up from -3.3% a year earlier. (Industrial production is only reported quarterly in Australia.) - - - 1 3 7 9 - - - Australia s economy is driven by exports of mining and agricultural products. The categories shown account for nearly % of Australian exports, which in turn account for over % of Australian GDP. Australia Exports Billion Australian Dollars Metals, ores, minerals Coal, coke, briquettes Cereals, wool, sheepskins Exports of metals, ores, and minerals dropped sharply in the first quarter, reflecting the global growth slowdown. Coal exports also declined. 1 1 Exports of agricultural goods rose in the first quarter to a new record high. Inflation in Australia, as measured by the four-quarter change in the Consumer Price Index, fell to 1.% in the second quarter, down from a cyclical high of 3.% in the second quarter of. The Reserve Bank of Australia has cut short-term interest rates by 1. percentage points since last October in response to falling inflation and expectations of slowing growth. 1 Australia Interest Rates and Inflation Percent/ -Year Bond Yield Call Money (Overnight) Rate Consumer Price Index 1 in New Zealand (not shown) was up.% year-over-year in the first quarter of. m193ribbg - 9 9 -
ASEAN in Indonesia was up.% yearover-year in the second quarter. Growth has remained remarkably steady over the last decade. Annual growth, which rose from.1% in to.% in, is expected to slow to a still-respectable % in and.9% in. 1 Indonesia GDP and 1 Industrial production was up just.% year-over-year in June. Because of its size and growth potential, Indonesia is sometimes included with Brazil, Russia, India, and China in an expanded version of BRICs, i.e., BRIICs. - - gdpfcidnq 1 3 7 9 - - in Thailand, still recovering from last year s floods, rose 3.3% (.9% annual rate) in the second quarter. GDP was up.% year-over-year. Annual GDP, which rose 7.% in, was up just.1% in. Growth of.3% is expected % in, with.9% growth in. 3 Thailand GDP and 3 Industrial production in manufacturing has not fully recovered from the flooding and was down 1.% year-over-year in the second quarter. - - -3 gdpfcmysq 1 3 7 9 - - -3 in Malaysia was up.% yearover-year in the second quarter, up from.9% in the first quarter. Annual GDP growth, which slowed from 7.% in to.1% in, is expected to slow further to.3% in and. 1 Malaysia GDP and 1 Industrial production was up.9% yearover-year in the second quarter. Annual growth in industrial production slowed from 7.% in to just 1.% in, but is expected to rise to.3% in and 3.1% in. - - -1 gdpfcmysq 1 3 7 9 - - -1
ASEAN in Singapore was up just % year-over-year in the second quarter. Annual GDP growth, which slowed from 1.% in to.9% in, is expected to slow further to.% in. Industrial production in manufacturing was up.7% year-over-year in the three months ending in July. (Monthly data are very noisy.) 3 3 1 - - -1 - - Singapore GDP and gdpfcsgpq 1 3 7 9 3 3 1 - - -1 - - in the Philippines was up.% year-over-year in the first quarter, up from.% in the fourth quarter of. Annual GDP growth, which slowed from 7.% in to 3.7% in, is expected to firm slightly to.7% in and.% in. Industrial production was up 1.7% yearover-year in the second quarter. 3 1 - - -1 - - Philippines GDP and gdpfcphlq 1 3 7 9 3 1 - - -1 - - growth in Vietnam slowed to % year-over-year in the first quarter. This was the slowest growth since the first quarter of 9 and the second slowest quarterly growth rate since the data series began in 1. Annual GDP growth, which slowed from.9% in to.9% in, is expected to slow to.1% in, and could be even less. 1 Vietnam GDP and 1 Vietnam has a population of nearly 9 million people. Its per capita GDP (about $1) is similar to India s and is expected to grow about 7% in real terms over the next decade. gdpfcvnmq 1 3 7 9 1