According to the Federal Reserve’s Beige Book released yesterday the US economy continued to expand at a modest pace with a ‘generally positive’ outlook from mid-May through early June, with little changing from the previous reporting period. The Fed said that ‘many’ of its 12 regions saw slight gains in retail sales and home sales, whilst auto sales remained flat. The labour market continued to expand and remained ‘tight, with contacts across the country experiencing difficulties filling open positions’. The report stated that ‘The outlook generally was positive for the coming months, with expectations of continued modest growth despite widespread concerns about the possible negative impact of trade-related uncertainty’.
One economy that is seeing more headwinds than the US at the moment is that of Japan, where trade wars, slowing global growth and even an export row with South Korea look to be taking their toll. Japan’s exports fell for the seventh straight month with manufacturers' business confidence hitting a three-year low. The world’s third-largest economy saw exports fall 6.7% in June from a year earlier, well above the 5.6% decline the market was looking for and on top of the 7.8% fall from a month earlier. The standout figure was exports to China, Japan's biggest trading partner, which fell 10.1% YoY, down for the 4th consecutive month. All Asia-bound shipments, which account for more than 50% of Japan’s overall exports, fell 8.2%. On top of these poor figures, the Reuters Tankan survey highlighted the fragility of the economy when it reported Japanese manufacturers' business confidence hit a three-year low in July.
Another Asian economy painting a gloomier picture of its economy is South Korea, where the Bank of Korea unexpectedly lowered its benchmark interest rate to 1.5% from 1.75%. Governor Lee Ju-yeol cited rising protectionism and frictions with Japan as the central bank lowered both inflation and growth forecasts. The BOK now expects inflation to rise 0.7%, down from 1.1% previously and growth now at 2.2%, down from 2.5% in the second quarter. In his news conference, the governor warned ‘The need to support economic recovery has become bigger’ adding ‘If Japan’s export restrictions against South Korea become a reality and even broaden, the impact on our economy, including exports, wouldn’t be small’.