Developed Asia Pacific countries faced increasing headwinds to economic growth during August. Lukewarm growth figures in developed Western economies such as the U.S. and the European Union are troubling the growth prospects of many export-oriented markets such as Singapore, Japan and Hong Kong. Despite some support from emerging markets, export orders for Singapore and Hong Kong have slowed down substantially. In Japan the current account surplus slid, while the Singapore government revised its export growth figures down for the rest of the year. The domestic prospects for the developed Asia Pacific markets too remained lukewarm. Inflation in many of these economies has been hitting consumer and business confidence. In Australia, souring consumer and business confidence accompanied a rising unemployment rate. However, unlike many export-based economies, Australia still expects emerging markets to consume most of its resources-based commodities such as coal and iron.

On the other hand, the currencies of developed Asia Pacific economies continued to be elevated against the U.S. dollar for the year, adding pressure on exports from developed Asian economies. While some countries like Japan have actively intervened in the currency market to weaken the domestic currency to support exports, some countries like Singapore deployed a strengthened currency to mitigate the effects of imported inflation. In Australia’s case, many private economists surveyed by Bloomberg blamed a strong currency as one of the reasons behind rising job losses.

Japan: Exports remain weak even as consumption and investments improve

Japan’s output for the second quarter ended June 2011 contracted 1.3% even as the country’s supply chain, which was hampered by an earthquake earlier this year, showed strong signs of healing. The fall in Japan’s output, however, was much slower than expected. Twelve economists surveyed by Dow Jones expected the world’s third-largest economy to shrink by 2.7% during the second quarter. Still, strong government spending and a rebound in consumer spending ensured that Japan’s slide in output was not steep.

Japan’s private sector spending was largely fueled by consumers. The country’s Cabinet Office reported that personal spending, after falling sharply in the aftermath of the March earthquake, slipped just 0.1% for the quarter ended June against an expected 0.5% decline. Sales of consumer electronic products such as televisions were strong. Further, purchases of big machinery by capital equipment companies also increased during the quarter. Machinery orders, an indicator of capital spending, rose gradually through the quarter. Government spending supported further growth. Japan had provided fiscal boosts to the economy through two separate rounds of reconstruction budgets amounting to nearly $80 billion.

However, the country’s export engine still remains a weak spot. Japanese exports, taking a hit from the auto and the electronic sectors, decreased 4.9% for the three month period ended June. While the effects of the supply chain disruption on exporters has been dissipating slowly, the progressive strengthening of the Japanese yen, which makes Japanese exports expensive abroad, is impeding the industry. In recent times, the Japanese yen has strengthened to nearly 75.94 against the U.S. dollar. The Bank of Japan reported that this is much higher than the 82.59 figure that Japanese companies had expected. The strengthening yen has pushed these companies to pare down production. Some companies like Nissan, Japan’s third-largest auto maker, has said that it will move some production factories outside of Japan to escape the effects of a strengthening yen. Toyota reported that it stands to lose almost $3,900 in profit on a $20,000 car for every 15-yen jump against the U.S. dollar.

The weakness in exports was also reflected in Japan’s current account surplus, which continued to slide for the fourth consecutive month since April. In July, Japan’s current account surplus fell almost 50% to $6.72 billion.

Japan’s government, which had resisted intervening in the currency markets thus far, has now resorted to weakening the yen to support exports. In early August, Japan’s government bought nearly $60 billion dollars, the largest single day purchase of the currency, increasing the supply of the Japanese yen in the currency markets by 4.6 trillion yen. Despite the measures though, the yen strengthened again to its pre-intervention levels.

On a different note, Japan’s politicians have settled for a compromise over the country’s bond issuance. Japan’s ruling party, the Democratic Party of Japan (DPJ), had sought the approval of the country’s parliament to raise additional debt to finance the country’s budget deficit. However, the upper house of the parliament, controlled by the Liberal Party of Japan (LPD), had opposed the bond issuance, sighting mounting debt concerns. The DPJ had warned that the normal functioning of the government could come under pressure by October without more funds. The LPD, which had not budged initially, has agreed to support the bill in return for spending cuts. The Wall Street Journal reported that Japan’s Prime Minister Naoto Kan is expected to resign from his post after the passage of the bill.

Australia: Rising unemployment rate gives rise to concerns over a slowdown

Australia’s policy makers, who have been increasingly worried about an overheating economy on the back of a thriving natural resources sector, are now concerned about a slowdown in output.

Over the past two quarters Australia’s resource-rich states have been witnessing an investment boom that has pushed up demand for a variety of resources including labor. Consequently, during April, unemployment in the country plummeted to its lowest level in eighteen months. Since then, employment figures from the resource-rich country have been unflattering. In July jobless figures in the country touched 5.1%, up from 4.9% in June. Many Australian industries outside the natural resources and the mining sector have come under pressure due to a strengthening Australian dollar and higher input costs, resulting in job cuts. Consequently, both consumer and business confidence declined over the past two months. According to a survey by Westpac Banking Corporation and Melbourne Institute, Australia’s consumer sentiment index slid 3.5% during July.

Weaker growth and job prospects have also forced consumers to cut down on discretionary spending and save more, which has resulted in lower retail sales. Some of the country’s large retail chains have reported a sharp fall in same-store sales. Australia’s second largest retailer by revenues, David Jones, reported a 7% drop in sales during July. What’s more, private economists surveyed by Bloomberg in July had predicted a rising default in lease and rental payments and store closures from retail chains. Some private banks surveyed by Bloomberg have estimated that the unemployment rate will climb to 5.25% for September from 5.1% in the July.

These and other downbeat developments have caused Australia’s central bank, the Reserve Bank of Australia, to revise growth forecasts down. The RBA now expects Australia’s GDP to grow by only 2% for 2011, down steeply from its May forecast of 3.25%.

The RBA, which had earlier signaled an interest rate hike during the end of the year, is expected to delay its plan for a tighter monetary policy. With prospects of slower growth ahead, the RBA is widely expected to cut interest rates. Economists from investment banks like Goldman Sachs and Deutsche Bank expect the central bank to cut interest rates by 50 basis points in two installments through 2010. Both these banks had earlier predicted that interest rates would go up by 25 basis points.

Despite the slowdown in the short term, the RBA expects growth to rebound strongly in 2012. The RBA revised its growth figures to 4.5% in 2012 from its earlier expectations of 4.25%. The central bank cited that Australia’s low debt, continued investment in its mining sectors, and demand for coal and iron from China and India, will drive growth in the medium term. It also expects labor markets to be more buoyant in the coming months. Two prominent coal mining projects, estimated to be built at the cost of nearly AU$30 billion ($30.8 billion), are largely expected to generate nearly 10,000 jobs for 2012. Further, the Australian dollar, which had strengthened to its highest level against the U.S. dollar in late July, has weakened a bit. The weakening in the domestic currency is expected to provide a fillip to the country’s tourism and manufacturing industries.

New Zealand: Rugby Union World Cup arrives on time to support economy

After losing nearly NZ$15 billion ($12.5 billion) to an earthquake in February this year, New Zealand’s economy is poised for some good news. New Zealand will host the Rugby Union World Cup in September. Many economists are predicting strong spending by tourists coming to New Zealand for the sports event.

According to economists from the Reserve Bank of New Zealand, the country is anticipating 100,000 visitors for the Rugby World Cup. The central bank also expects the visitors to spend $600 million during the event, with ticket sales alone reaching over $230 million. Further, $786 million in government expenditures needed to refurbish and reconstruct old stadiums have already served as a fiscal stimulus, counteracting the effects of the devastating earthquake earlier this year. In all, direct and indirect spending from the event will boost New Zealand’s GDP by 1.4% according to the central bank.

The labor market too is looking up thanks to the effect of the Rugby World Cup. The number of advertisements from employers seeking workers jumped 15% year-on-year in July 2011. Compared to June, job advertisements in July climbed 4.2%. Most of the job vacancies advertised came from the retail, consumer durables, and hospitality and tourism industries.

Furthermore, medium-term inflation expectations in the earthquake-hit country have also improved marginally during August. According to a survey from the country’s central bank, businesses expect inflation to hover around to 2.86% in 2013, down from earlier expectations of 3%.

Hong Kong: Inflation hits the roof

Hong Kong’s inflation, which has progressively climbed over the past 18 months, broke another record in July by climbing at the fastest monthly pace in 16 years. The country’s consumer price index jumped 7.9% in July over the same month a year ago. The last time monthly inflation spiked at such a pace was in 1995.

The financial hub’s inflation was fueled by a law that raised minimum-wages, a cut in housing subsidies, and a jump in food prices. Hong Kong had initiated a law stipulating a minimum wage of HK$28 ($3.60) per hour in July. This, along with higher pork prices that pushed up food costs 7.4% in July, have been cited by the government as a cause for inflation. The government too blamed a 7.6% rise in private housing rental for higher inflation. Many private banks surveyed by Bloomberg expect high inflation to prevail in Hong Kong in the near term, primarily due to higher spending from Hong Kong’s government. The government in Hong Kong has said that it will boost the salaries of bureaucrats and civil servants by around 7% during the year.

This inflationary scenario along with a slowdown in the U.S. and Europe, which serve as Hong Kong’s major export markets, are expected to take a toll on the economy. Two investment banks, Morgan Stanley and Daiwa Securities, have predicted that the severe economic headwinds could push Honk Kong into recession for the quarter ending September 2011.

Already some parts of Hong Kong’s economy are showing signs of a slowdown. The property market in particular has come under strain. After eighteen months of consistently rising prices, the number of property transactions in the financial center fell by 37% to 7,291 in July from 11,600 transactions in June. In terms of value, the property transactions fell 40% to HK$31.8 billion ($4.1 billion) down from HK$52.9 billion ($6.8 billion). The Wall Street Journal had reported that stringent rules requiring a higher mortgage down payment for home buyers and regulations on bank lending towards the property sector also contributed to the decline in the number of property transactions.

Singapore: Rising inflation and slowing exports challenge economy

Singapore’s economy, which expanded at a fast pace until the first quarter of 2011, is now expecting moderate growth for the rest of the year. The rising cost of living, weakening growth in developed markets, and a strengthening Singapore dollar are threatening to steal the momentum from the country’s economy.

A marked slowdown in the U.S. and problems relating to debt markets in Europe have hurt Singapore’s exports for the second quarter ended June 2011. Since exports account for almost half of the country’s GDP, a slowdown in overseas markets impeded Singapore’s GDP growth, which registered 6.5% in the three months through April and June against an estimated 7.8% growth.

On the other hand, inflation is stubbornly high in the city-state. Fueled by higher transportation and housing costs, Singapore’s consumer price inflation jumped 5.4% in July, a much higher figure than the average 5% inflation that economists surveyed by Bloomberg had predicted. In recent times, housing in Singapore has become progressively more expensive, as wealthy citizens from China and Indonesia have increasingly invested in Singapore’s property sector according to reports from Bloomberg.

Singapore’s monetary authority now expects inflation to hover between 4% and 5% from its earlier expectation of between 3% and 4%. To fight the stubborn rise in prices, the country’s policy makers said that they will let the currencies appreciate further. A strong domestic currency could cushion the effects of inflation by making imported items cheaper. Since the beginning of 2011, the Singapore dollar has been the best performing Asian currency.

On the other hand, the strong currency is hindering the growth prospects of many export-based companies in the electronics and pharmaceutical industries. Partly due to this and weakness in developed overseas markets, the country’s Prime Minister Lee Hsien Loong said that Singapore’s economy will grow between 5% and 6% during 2012 instead of the earlier prediction of 7% growth. Three of the country’s private sector banks and the country’s trade ministry also expect similar forecasts for Singapore’s economy.

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