International | Apr 29 2009
By Chris Shaw
To better understand the economic health of the Asian region DBS Group has developed what it calls the Dashboard, which it expects will give a clearer indication of just where the region is in terms of the economic cycle. The Dashboard is what the group classes as a two dial console centred on exports and industrial production (IP).
The reason only industrial production and exports have been chosen is they give an indication of both the supply side (IP) and the demand side (exports) of the economy, so giving a relatively balanced view of economic conditions. Given the dashboard is looking for turning points in the cycle of Asian economies, it will be the levels of both measures DBS will focus on, meaning a concentration on month to month data rather than comparing today’s numbers with those of a year ago.
The good news from the group’s research is the activity surge in February throughout the region appears to be a real one as March export data suggest the corner has been turned for this measure. DBS expects GDP will soon follow.
The not so good news is the turnaround in industrial production is more tentative than the improvement in exports, though DBS points out this is only natural as supply always lags demand at the bottom of the economic cycle. It is the analysts’ view that as long as the improvement in exports is sustained, it is reasonable to expect similar improvements in both GDP and production in coming months.
The latest data show the export improvement recorded in February has stuck in March as exports since the end of January are up 16%. As mentioned previously, IP data are slower to bounce as the February data show a 3.6% increase in month-on-month terms, but March data remain mixed, with Taiwan registering a strong gain but Singapore a sharp decline.
Regardless, DBS points out if the rise in demand persists there will be a snap-back as producers rush to catch up given their exhausted inventory levels and so the strength in exports should produce a coressponding bounce in IP in relatively short order.
The Dashboard data fit the group’s previous analysis in that it had suggested most of the factors behind the drop in exports were of a short-term nature, which the latest numbers seems to support. This should see an improvement in GDP numbers in a not too distant future. DBS expects the 10% average drop in Asian GDP in the December quarter to moderate to a 3-4% fall in the March quarter this year before returning to positive growth of 4-5% in the June quarter.
Another way to look at the data is the current economic state of the region is in the early stages of an upswing, with a typical pattern being an acceleration in the rate of improvement from this point forward.