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Forex Flash: Korea & Taiwan show more signs of a soft patch in global data - Nomura

FXstreet.com (Barcelona) - Nomura economist Rob Subbaraman notes that Korea and Taiwan have today released key data that came in significantly weaker than expected.

He notes that Korea's industrial output fell 2.6% (sa) m-o-m in March versus a consensus forecast of -0.9%. This is a third consecutive decline, following drops of 0.9% in February and 1.2% in January. Taiwan's Q1 GDP slowed from 3.7% y-o-y in Q4 2012 to 1.5% in Q1, less than half the rate of the consensus forecast of 3.1%. Moreover, he adds that in the quarter Taiwan's GDP contracted by 0.8% (sa) q-o-q. The details of the Korean data were also not encouraging, as the drop in shipments (-2.1% m-o-m) outpaced the decline in inventories (-0.4%), causing the inventory-shipment ratio to rise.

He continues to note that Korea and Taiwan are both export-orientated economies and these tier-one data are an important signal, in his view, that emerging Asia is feeling the effects of a synchronised slowdown in global aggregate demand, reflecting softer data from the US and China, and with no let-up in the recession in the euro area. He writes, “The depreciation of JPY could also be having some negative effect on exports, notably in Korea. Indeed, he expects Korea's working-day adjusted exports in April (due out tomorrow) to fall.

From a policy perspective, he sees that Asian central banks have likely moved away from any tightening bias that they might have had a few months ago. Indeed, he expects the Reserve Bank of India to cut rates by 25bp this Friday, and the risks are than others could follow, such as Korea and Thailand. He writes, “The fall in commodity prices, which has eased inflationary pressures, has also opened the window for central banks to focus more on the business cycle. The risk, however, is that too loose monetary policy will fuel a further build-up of financial imbalances.”

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