Asia's Economic Gloom
Asia’s Largest Economies Hit a Rut

Chinese markets were down significantly on Monday, as investors continue to get more bearish about China’s prospects. The SCMP:

The steep losses in mainland markets came after China released a raft of key economic indicators for the first five months of the year, among which fixed-asset investment (FAI) recorded an unexpectedly large drop in growth to 9.6 per cent year-on-year.

On a single monthly basis, FAI growth decelerated to 7.5 per cent in May from 10.1 per cent in April.

“State sector investment remained strong….but private sector investment growth continued to slow and barely expanded at all last month,” said Julian Evans-Pritchard, a China economist for Capital Economics.

Meanwhile, the IMF warned over the weekend that Chinese corporate debt could spark a major financial crisis. Capital flight seems to have sped up: Bitcoin, which many Chinese having been using to get money out of the country, rose above $700 on Monday.

Economic headwinds aren’t just hitting China, however. Fitch lowered its outlook for Japan, sending Japanese stocks falling. The FT:

The decision makes Fitch the first credit rating agency to change its position on Japan following prime minister Shinzo Abe’s decision to delay a rise in consumption tax that was scheduled for April next year.

Fitch’s move highlights a fierce debate about how to interpret the tax delay. Some analysts say Mr Abe has given up on balancing the budget while others argue the delay will help Japan escape deflation, and so boost its finances in the long run.

“The outlook revision primarily reflects Fitch’s decreased confidence in the Japanese authorities’ commitment to fiscal consolidation,” the agency said.

Corporate sentiment in Japan has worsened lately, with many manufacturing giants anticipating a difficult summer ahead followed by some sort of rebound in the fall. Although many business leaders think Japan is simply in a holding pattern this summer, the situation clearly doesn’t speak well of Abenomics. Of course, given the global economic turmoil, there’s only so much Japanese officials can do to get the economy growing.

Worsening economic conditions are never good, but they are particular cause for worry when geopolitical tensions between China and Japan are as high as they are.

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