South Korea’s president on Monday described the country’s escalating trade war with Japan as a wake-up call to revamp its economy and issued a nationalistic call for economic cooperation with North Korea, which he said would allow the Koreas to erase Japan’s economic superiority in “one burst.”
President Moon Jae-in made the comments in a meeting with senior aides to discuss Japan’s imposition of trade curbs on South Korea. They came as a surprise since North Korea has raised tensions in recent weeks with tests of new short-range weapons that pose a threat to South Korea’s security.
“The advantage Japan’s economy has over us is the size of its (overall) economy and domestic market. If the South and North could create a peace economy through economic cooperation, we can catch up with Japan’s superiority in one burst,” Moon said in the meeting at Seoul’s presidential Blue House.
“Japan absolutely cannot prevent our economy from taking a leap. Rather, (Japan) will serve as a stimulant that strengthens our determination to become an economic power,” he said.
Moon’s claim that South Korea could overcome the trade dispute with Japan, the world’s third-largest economy, by cooperating with North Korea, a desperately poor nation currently under crippling U.N. sanctions, shows that he is running out of ideas for seeking leverage against Japan, which for decades has maintained a huge trade surplus with South Korea, some analysts said.
Even if economic cooperation between the Koreas fully resumes after quick progress in nuclear diplomacy — which looks increasingly unlikely — rebuilding the North’s economy following decades of isolation and policy blunders could be a long and excruciating process.
Opposition lawmaker Lee Man-hee, spokesman for the conservative Liberty Korea Party, said Moon’s comments were shocking and delusional.
“After refusing to issue a single warning over North Korea’s blunt provocations targeting (South Korea), why is the president talking about inter-Korean economic cooperation now?,” Lee said. “A peace economy — where peaceful relations drive economic growth — only sounds good, and it’s not clear what it is and how things will be actually done.”
Moon has described Japan’s moves to downgrade South Korea’s trade status and tighten controls on exports to South Korean manufacturers as a deliberate attempt to damage his country’s export-dependent economy. He has accused Tokyo of weaponizing trade to retaliate over political disputes surrounding the countries’ bitter wartime history.
Tokyo says its measures are based on national security concerns and, without providing specific evidence, has questioned the credibility of South Korea’s export controls on sensitive products. Japanese officials have also claimed that South Korea could not be trusted to faithfully implement sanctions against North Korea and suggested that the South may have allowed sensitive materials to reach the North.
North Korea and Japan didn’t immediately respond to Moon’s comments. The North has been demanding that Seoul turn away from Washington and restart inter-Korean economic projects held back by U.S.-led sanctions against the North. The U.S. has said the sanctions should stay in place until the North takes concrete steps to relinquish its nuclear weapons and ballistic missiles.
The North has significantly reduced its diplomatic activity with the South amid a stalemate in the larger nuclear negotiations with the U.S. It has been ramping up its weapons tests, including two test firings of what it described as a new rocket artillery system last week, while expressing frustration over the slow pace of diplomacy and the continuance of U.S.-South Korea military drills that it sees as an invasion rehearsal.
Choi Kang, a senior analyst at Seoul’s Asan Institute for Policy Studies, said Moon’s comments could create friction with Washington and also send a wrong message to North Korea, which may think that its brinkmanship is working and push further to increase pressure on Seoul.
He said Moon’s comments are “a confession that Seoul doesn’t have many cards in its hands.”
He said it was unclear whether Moon’s suggestion that he could create a breakthrough in the trade row with Japan through inter-Korean relations was realistic.
Choi also said Moon’s words would strengthen views that the trade dispute between South Korea and Japan may signal a larger geopolitical divergence between the U.S. allies over North Korea and other security issues. He said that may complicate Washington’s efforts to maintain cooperation to deal with the North’s nuclear threat and counter the regional influence of China.
Moon met with North Korean leader Kim Jong Un three times last year and they agreed to resume economic cooperation when possible, voicing optimism that international sanctions could end to allow such activity. But the inter-Korean peace process has halted since the collapse of a nuclear summit between Kim and U.S. President Donald Trump in February over disagreements over exchanging sanctions relief and disarmament.
Earlier on Monday, South Korea said it plans to spend 7.8 trillion won (US$6.5 billion) over the next seven years to develop technologies for industrial materials and parts as it moves to reduce its dependence on imports. The government will also financially support South Korean companies in mergers and acquisitions of foreign companies and expand tax benefits to lure more international investment, while easing labour and environmental regulations so that local companies can boost production, the country’s trade ministry said.
South Korea’s plans are aimed at stabilizing the supply of 100 key materials and parts in semiconductors, display screens, automobiles and other major export sectors, where its companies have heavily relied on Japanese imports to produce finished products.
On Friday, Japan’s Cabinet approved the removal of South Korea from a list of countries with preferential trade status, which would require Japanese companies to apply for case-by-case approvals for exports to South Korea of hundreds of items deemed sensitive.
The decision followed a July measure to strengthen controls on certain technology exports to South Korean companies that rely on Japanese materials to produce computer chips and displays used in smartphones and TVs, which are key South Korean export products.
South Korean officials have vowed retaliation, including taking Japan off its own “whitelist” of nations receiving preferential treatment in trade. Moon’s office said it will also consider ending its military intelligence-sharing pact with Japan as part of its countermeasures, saying it could be difficult to share sensitive information considering the deterioration of trust between the countries.
German economy grows slightly in 3Q
BERLIN — Germany’s gross domestic product returned to modest growth in the third quarter, the Federal Statistical Office reported Thursday, staving off a widely-feared recession in Europe’s largest economy.
The Wiesbaden-based agency said the economy grew 0.1% in the July-September period over the previous quarter, largely driven by public and private consumption. Exports rose as well, while imports remained roughly at the second quarter level, the agency reported.
It said, however, that the second quarter contraction was greater than preliminary figures had shown, with the economy shrinking in the April-June period by 0.2% compared to the 0.1% originally reported.
Two straight quarters of declining output is considered a technical recession, which many economists had predicted that Germany had entered in the third quarter.
A week ago, the German government’s independent panel of economic advisers reported that a 0.1% third-quarter contraction was likely.
Though they said there were no signs of a “broad, deep recession,” the panel also said there was no sign of a “strong revival” in the fourth quarter. The five-member panel cut its economic forecast to growth of 0.5% this year and 0.9% in 2020, compared with its forecast in March of 0.8% this year and 1.7% next year.
And even though the recession has been averted, the numbers show Germany is in a de facto stagnation, and its export-driven economy still faces headwinds due to international uncertainty.
Services companies and the jobs market have held up well in Germany, but the industrial sector, led by automobiles and factory machinery, has seen declines amid trade tensions.
Among other things, the dispute between U.S. President Donald Trump and the Chinese leadership over China’s trade surplus with the U.S. has dampened trade and industrial output by raising uncertainty about whether and where more tariffs might be imposed. Another negative is uncertainty about the date and terms of Britain’s departure from the European Union.
In their report, the government economists cautioned that a no-deal Brexit could yet chop 0.3 percentage points off next year’s German growth, reducing it to 0.6%.
Britain is currently scheduled to leave the European Union by the end of January, but whether, how and when it leaves will depend on the outcome of an election next month.
China economy grinds lower as October indicators miss forecasts
By Gabriel Crossley and Huizhong Wu
BEIJING (Reuters) – China’s industrial output grew significantly slower than expected in October, as weakness in global and domestic demand and the drawn-out Sino-U.S. trade war weighed on activity in the world‘s second-largest economy.
Industrial production rose 4.7% year-on-year in October, data from the National Bureau of Statistics released on Thursday showed, below the median forecast of 5.4% growth in a Reuters poll.
Indicators showed other sectors also slowing significantly and missing forecasts with retail sales growth back near a 16-year trough and fixed asset investment growth the weakest on record.
The disappointing economic data adds to the case for Beijing to roll out fresh support for the economy after China’s economic growth slowed to its weakest pace in almost three decades in the third quarter as the bruising U.S. trade war hit factory production.
Broad activity in China’s manufacturing sector remains weak with data on the weekend showing factory gate prices falling at their fastest pace in more than three years in October.
China’s official Purchasing Managers’ Index (PMI) also showed activity in the factory sector remained in contraction for a sixth straight month in the month.
“Admittedly, optimism surrounding a phase-one U.S.-China trade deal could provide a boost to corporate investment in the near term,” Capital Economics China Economist Martin Lynge Rasmussen said.
“But even if a minor deal is agreed upon in the coming months, this would merely allow the focus to shift to the more intractable issues that we think will eventually lead the trade talks to break down. The case for further monetary easing remains intact.”
Other data on Thursday showed China’s property investment growth in the first 10 months of the 2019 slowing year-on-year.
The tariff war between China and the United States has hit global demand, disrupted supply chains and upended financial markets.
While some signs of recent progress in trade negotiations between the superpowers have cheered investors, officials from both sides have so far avoided any firm commitments to end their dispute.
That uncertainty has continued to weigh on manufacturers and their order books.
Thursday’s data also showed fixed asset investment, a key driver of economic growth, grew 5.2% from January-October, against expected growth of 5.4%. The January-October growth was the lowest since Reuters record began in 1996.
Private sector fixed-asset investment, which accounts for 60% of the country’s total investment, grew 4.4% in January-October.
On Wednesday, China’s State Council said Beijing would lower the minimum capital ratio requirement for some infrastructure investment projects.
Retail sales rose 7.2% year-on-year in October, missing expected growth of 7.9% and matching the more than 16 year low hit in April.
Consumers have been hit with higher food prices over the past few months, as pork and other meat prices soared.
At the same time, consumers have been reluctant to make big purchases with auto sales falling for the 16th straight month in October, data showed on Monday.
(Writing by Stella Qiu; Editing by Sam Holmes)
Why Corporate America Is Bullish on the Economy – Investopedia
Corporate executives are surprisingly bullish about the U.S. economic outlook for 2020, judging from an extensive analysis of management commentary in Q3 2019 earnings conference calls, as conducted by Goldman Sachs. Among the companies making particularly optimistic comments are Marriott International Inc. (MAR), Procter & Gamble Co. (PG), Republic Services Inc. (RSG), Harley-Davidson Inc. (HOG), and Allegion PLC (ALLE).
“Despite high levels of uncertainty, executives remained upbeat on the 2020 economic outlook. Corporate managers were optimistic about recent economic data, particularly consumer data,” Goldman writes in the current edition of their quarterly S&P Beige Book publication, released on Friday. “However, uncertainty remains high and executives expect to be dealing with US-China trade tensions for the foreseeable future. Consequently, inventories have declined and dealer demand has dropped,” they add.
- U.S. corporate executives are upbeat about the economy in 2020.
- This is based on analysis of Q3 2019 earnings calls.
- However, other surveys of CEOs and CFOs indicate growing gloom.
- The OECD, IMF, and Conference Board see lower U.S. growth in 2020.
Significance For Investors
Hotel operator Marriott calls the U.S. economy “robust” overall, and notes that its industry has low unemployment and high occupancy. Consumer products company Procter & Gamble sees “no signs of weakness.” Waste hauling company Republic says “the underlying economy is pretty strong…our view now and our view for 2020 is the economy is in pretty good shape.” Motorcycle manufacturer Harley-Davidson does not see any more uncertainty than 6 months ago, and noted that its own industry enjoyed a Q3 “pick up,” calling this “an encouraging sign.”
Security products and services company Allegion says “we are solid, positive, upbeat on the economy.” They find that the key indicators for their business are encouraging, including consumer confidence, low unemployment, high tax revenues for state and local governments, low interest rates, and a tight housing market. In conclusion, they “don’t know how you could not be positive about the view going forward.”
However, the bullish views observed by Goldman in Q3 conference calls conflict with recent surveys that show declining confidence among senior executives. CEOs are more gloomy about the future than at any previous time since the global financial crisis of 2008, according to a survey conducted by the Conference Board that was cited in a previous Goldman report. Meanwhile, “More than half (53%) of US CFOs believe that the US will be in recession by the 3rd quarter of 2020 and 67% believe that a recession will have begun by the end of 2020,” per the latest Duke University CFO Global Business Outlook survey.
Other key trends discussed in Goldman’s Beige Book relate to spending plans and the upcoming 2020 U.S. national elections. “S&P 500 cash spending plummeted in 2Q driven by a ten-year low in CEO confidence, but has stabilized in 3Q. Many executives highlighted deferring capital expenditures as they approached investments with increased caution,” the report noted. “Firms also outlined plans to divert cash from capital projects and [stock] buybacks in favor of strengthening the balance sheet,” the authors added.
Regarding the 2020 elections, many companies indicated that they are planning for multiple outcomes. Others preferred to discuss their long-term plans, while avoiding comments on politics. Some noted that there often is a big difference between what politicians advocate as candidates, and what they they actually do once elected.
In contrast to the bullish notes on the economy that Goldman finds in earnings commentary, Q3 2019 profits for the S&P 500 are on track to be down on a year-over-year (YOY) basis for the third consecutive quarter. However, while aggregate S&P 500 Q3 earnings are down by about 1% YOY so far, the median S&P 500 stock actually has a 5% increase, per Goldman’s current US Weekly Kickstart report.
Real GDP growth in the U.S. will slow from average rates of 2.9% in 2018 and 2.3% in 2019 to its long-term trend of 2.0% in 2020, per The Conference Board. However, this will represent a slight increase from annualized rates of 1.9% in Q3 and Q4 2019. The OECD calls for 2.28% U.S. real GDP growth in 2020, while the IMF projects U.S. economic growth to be 2.1% in 2020, down from their estimate of 2.4% for 2019.
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