August Macro Economy Recap

  • China official PMI slipped into contraction territory while an unofficial survey pointed to an expansion for the first time in 17 months. The government’s manufacturing Purchasing Managers’ Index (PMI) came in at 49.9 in July, versus the 50.0 in June. Whereas the unofficial reading expanded rose above the key 50 level for the first time since February 2015. The index reported was at 50.6 for July, compared with 48.6 in June. (August 1)

  • Japan cabinet approved an economic stimulus package worth 28.1 trillion yen today, in a bid to pull Japan out of deflation and shore up the economy, Bank of Japan held negative interest rate unchanged (August 2)

  • The Reserve Bank of Australia has cut the official interest rate to a fresh low of just 1.5% (August 2)

  • China’s export and import fell in July. Imports fell 12.5% from a year earlier, exports fell 4.4 % on-year, the General Administration of Customs said, adding that it expects pressure on shipments likely will start to ease in October. That resulted in a trade surplus of USD52.31 billion in July, versus June’s USD48.11 billion. (August 7 )

  • India central bank held interest rate unchanged (August 10)

  • New Zealand central bank cut its benchmark rate by a quarter point to 2 percent, a fresh record low (August 11)

  • IMF predicts China GDP will grow 6.5% this year, compared with China’s own target of 6.5%, in its latest report today, but urged China to shift away from policy attention on GDP growth to focus more on other economic indicators (August 13)

  • Singapore’s consumer price index inflation dropped for the 21st consecutive month in July, housing rental prices decreased 4% month-on-month during the quarter (August 23)

  • Macau economy contracted 7.1% in the second quarter, slower than the 10% year -on-year contraction (August 30)

This month’s market view highlight, HSBC economist’s view on China’s industry overcapacity problem-

Chinese government has identified six industries with overcapacity problems – coal, steel, aluminium, shipbuilding, cement and flat glass. Some are working at less than 70% of capacity. Most are also heavily indebted, with the liabilities-to-assets ratios of aluminium and shipbuilding close to 80% compared with an average of 56% for the rest of industry. This debt burden and overcapacity mean the six sectors have low profitability. The percentage of loss-making firms in sectors with overcapacity is twice the industrial average. State-owned enterprises (SOE) have a strong presence in these sectors. The coexistence of overcapacity and under-investment has thus become a key challenge for China, HSBC China economist Qu Hongbin said.

Tackling overcapacity means speeding up SOE reforms and encouraging the liquidation and restructuring of zombie companies. “Banks must recognize non-performing loans so that credit can be re-directed to more efficient industries. Market forces rather than government initiatives should play the key role in allocating resources.” Qu said. If the government refrains from intervention in enterprises’ investment decisions and stops supporting inefficient, loss-making SOEs, it would not only help those businesses to operate in a manner more aligned with market movements but would also give private firms a level playing field, Qu said in a report on China’s capital contradiction report. (August 4)