Economy in Brief: November 2023

In this week’s letter we focus on recent investor behaviors concerning Asia. We note the recent exodus of investor funds from the region, driven largely by outflows from Mainland China amid lingering uncertainties. We also examine investor pivots toward other areas in the region, including India and Vietnam, and note the distinct pull factors of those economies. India has become an increasingly attractive investment destination for portfolio flows, with opportunities supported by a relatively stable rupee and a still-positive yield spread over the United States. Vietnam continues to draw investment flows from all over the world, spurred by its manufacturing infrastructure and comparatively low labor costs. Finally, we give a nod to the latest yield developments in Japan, following the central bank’s decision last week to officially demarcate 1% as the upper 10-year yield limit.

Foreign portfolio equity flows Foreign investors unwound about $15.6 billion of equity positions in Asia over September, after having already sold $20.2 billion of assets in August (chart 1). Almost all of the recent equity divestments are of Mainland China assets, with significant moves out of Taiwan and South Korea seen too. The selloffs come in contrast to the optimism displayed earlier this year when the major investment thesis for emerging Asia was about maximizing exposure to China’s reopening. Now, we have seen such optimism fade, with investors increasingly turning to other pockets of opportunity, such as India and Vietnam.

In September, the unemployment rate rose in the European Monetary Union to 6.5% from 6.4% in October. The rate had been chopping around between 6.5% and 6.4% over the last four months. There's nothing decisive about this rate increase except that the rate has stopped moving lower. The unemployment rate has gone from its trend of persistent declining to a period of waffling and failing to be able to make a new low. This begins to look more like the end of a run for the declines in the unemployment rate and the European monetary system. And given how far the decline has come, it's not surprising.

Some members still experience falling rates of unemployment- In September the unemployment rate fell in only one monetary union member in the table, and that is Greece where the unemployment rate fell quite significantly from 10.6% in August to 10% in September. Greece has the second highest unemployment rate in the table exceeded only by Spain at 12% in September. Greece is the only country in the table with the unemployment rate falling for three months in a row. Greece is also the country that is making the most progress overall in reducing its unemployment rate that is lower by 2.1 percentage points over 12 months. Among the twelve countries in the table, only five have net-lower unemployment rates over 12 months. That pack is led by Greece, followed by a 0.9 percentage point decline in Spain, a 0.6 percentage point decline in Italy, a 0.2 percentage point decline in Ireland, and a 0.1 percentage point decline in Germany.

Broadly low rates across the monetary union- The lowest unemployment rate in the monetary union among countries in the table is Germany at 3%. However, the lowest ranking unemployment rate in the table belongs to Ireland where its 4.2% unemployment rate sits in the lower 5.5 percentile of its historic queue of unemployment rates. That compares to a 6.7% standing for the nominally lower German rate. It points out that the relativity in these unemployment rates differs across countries and helps to explain why for the monetary union the overall EMU rate standing is at 2.1 percentage points, a lower standing than any country in the table. It's because the coincidence of low unemployment rates across all these countries is very unusual and has contributed to an unusual and extremely low unemployment rate for the monetary union itself.

Declining unemployment rates are becoming scarce- However, declines in unemployment are becoming rarer over three months; only two countries have unemployment rates lower over three months; they are Ireland and Greece. Over six months, four countries have lower unemployment rates: Portugal, Greece, Spain, and Italy. Over 12 months, unemployment rates fell in five countries and rose in seven countries.

Below-median unemployment rates are a common feature- Still, unemployment rates across the monetary union are low; they're below the medians for all countries except two. Only Luxembourg and Austria among country members in the table log employment rates above their 50-percentile mark which means they're above their historic medians for this period.