13/08/2025

BIZ & FINANCE WEDNESDAY | AUG 13, 2025

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Australia trims rates, signals more as inflation eases SYDNEY: Australia’s central bank cut interest rates yesterday for a third time this year and signaled further policy easing might be needed to meet its inflation and employment goals as the economy lost some momentum. Wrapping up a two-day policy meeting, the Reserve Bank of Australia (RBA) board cut the main cash rate by a quarter point to 3.6%, saying that data suggested core inflation would moderate to around the middle of its 2% to 3% target band, assuming a gradual easing in policy. Markets had been fully priced for a cut, having been wrong-footed in July when the central bank held steady, given inflation had slowed as desired in the second quarter while unemployment had moved higher. Governor Michele Bullock would not comment on whether a cash rate of 3.6% was restrictive or not, but said policymakers would decide moves on a meeting by meeting basis to ensure the bank met its two mandates of low and stable inflation and full employment. “Forecasts imply that the cash rate might need to be a bit lower than it is today to keep inflation low and stable, and employment growing but there is still a lot of uncertainty,“ said Bullock in a post-meeting decision. She added that a decision not to cut rates at yesterday’s meeting would have meant the central bank risked missing both of its mandates. The Australian dollar slipped 0.2% to US$0.6508, while three-year bonds reversed earlier losses to be up 2 ticks at 96.62. Swaps imply just a 34% probability that the RBA would follow up with a September cut, although two more rate cuts by early next year are fully priced in to 3.1%. The RBA stunned markets just last month by holding rates steady at 3.85% in a rare split decision as the majority of policymakers wanted to wait for more data to confirm inflation was easing towards the midpoint of the 2-3% target band. Yesterday, the RBA also slashed the outlook for economic growth as productivity stayed persistently weak. It, however, still forecast a slowdown in core inflation and maintained a steady labour market. Headline inflation eased to 2.1% in the June quarter, while the trimmed mean measure of core inflation hit a fresh three-year low of 2.7%. The labour market, on the other hand, is easing from full employment levels, with the jobless rate jumping to 4.3% from 4.1% in one month. There are signs that previous cuts in February and May are finally filtering through the economy, with consumer spending starting to pick up on the back of lower inflation and past tax cuts. The central bank has emphasised caution in easing, having only cut rates after the release of the quarterly inflation data. That is why investors are wagering on a cut in November and likely another in February next year. Meanwhile, the global outlook appears to be improving slightly. On Monday, US President Donald Trump extended a tariff truce with China by another 90 days, staving off triple-digit duties on Chinese goods and an immediate escalation in the trade war. “Unemployment has jumped, strengthening the case for cuts. At the same time, robust household spending shows some families can still find room for discretionary purchases,“ said Harry Murphy Cruise, head of economic research and global trade at Oxford Economics Australia. “In the end, prices and jobs trump everything else. With good news on inflation and bad news on unemployment, more easing is warranted.” – Reuters

China factories cut shifts, pay as US tariffs bite

Chai plans to cut prices by about 10%. To afford that, he is also cutting overtime – which previously made up more than a third of workers’ income – from 28 days per month in total to about 10. On average, his workers earn 5,000 yuan (RM2,949) a month before overtime. Factory bosses are also turning to temporary workers, hiring them for new orders and dismissing them when demand dries up. Dave Fong, who co-owns three factories in southern China making everything from school bags to climbing gear and industrial machinery, says he laid off 30 full-time workers at one of the plants, then rehired some of them on a temporary basis to fulfil unexpected orders. “We prefer temporary contracts so we don’t need to pay pension or insurance,” said Fong. “It’s by day or by hour.” “If we don’t do that, the company hits a dead end. The market is weak because consumption power has decreased. Another factor is trade, especially with the US.” Temporary work is common in China, especially among its nearly 300 million rural migrants. Chen Chuyan, a recruiting agent in the central city of Wuhan, says the going rate has dropped to 14 yuan per hour from 16 yuan last year. “There’s a long line of people waiting for job interviews every day, but the factories don’t have that much demand,” Chen said. Alan Zhang has taken such jobs in Datang village, a cluster of small garment factories in the southern city of Guangzhou, since 2021. Back then, he earned 400 yuan a day, but now he struggles to find work paying even half that amount. – Reuters

But economists say underemployment – which, in common with other economies, is not tracked in data – is worsening due to higher levies and industrial overcapacity, squeezing workers’ income, undermining their confidence about the future and prompting them to spend less. Consumer confidence lingers near record lows, retail sales have weakened, and inflation in July was zero. Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, says it is China’s manufacturing workers who suffer while exports – and the economy – keep growing despite the US tariffs. “It’s the people who are hammered by this model of huge competition, lower prices, thus you need to lower costs, thus you need to lower wages. It’s a spiral,” she said. “The model is crazy. I’m sorry, but if you need to export at a loss, do not export.” Statistics will not reveal Chinese workers as “the main losers” in the trade war because “they will not become unemployed, but they will get unpaid leave of absence or work fewer hours,” she added. Chai has already lost two key customers in his main market of Australia after other Chinese firms cut their prices and his factory is operating at half-capacity. “All those who have (left) America have come to Australia,” he said. “A lot of new supply is knocking on my customers’ doors.” While Chinese exports to the US dropped 21.7% year-on-year in July, they rose by 9.2% to the European Union, 16.6% to the Association of Southeast Asian Nations and 14.8% to Australia.

GDP rose by 4.4% year-on-year in the April June quarter, government data showed yesterday, just ahead of an advance estimate of a 4.3% gain released last month. The trade ministry raised its GDP growth forecast for 2025 to 1.5% to 2.5% from 0.0% to 2%, saying it largely reflected a better-than expected first half performance. In April, the ministry had cut its forecast from 1% to 3% after the US announced its plans for global tariffs. “However, the economic outlook for the rest of the year remains clouded by uncertainty, with the risks tilted to the downside,“ it said in a statement. On a quarter-on-quarter, seasonally-adjusted basis, GDP rose by 1.4% in the April-June period, in line with the advance estimate and following a 0.5% contraction in the first quarter. Bank of America economists said that the lower end of the GDP growth forecast of 1.5% looks highly improbable and implies a very sharp technical recession from July to December, amounting to a 1.5% contraction in each quarter. They added in a note that the upper end of the forecast of 2.5% implies a growth slowdown of about 0.4% between the second quarter and the fourth quarter of this year. “The 2% to 2.5% range thus seems most probable, and we likewise see upside risk to our forecast (of 1.8%),“ they said. At a press briefing yesterday, Monetary Authority of Singapore chief economist Edward Robinson said the central bank’s monetary policy stance remains appropriate after accounting for factors that affect Singapore’s domestic growth and inflation outcomes. GUANGZHOU: Mike Chai aims to cut wage costs at his kitchen cabinet factory by about 30% to remain competitive against other Chinese firms, which have stopped selling to the US due to steep tariffs and are now coming after his long-time customers in Australia. Chai had already halved his workforce to 100 people since the pandemic and says he has no more room to trim. Instead, he is shortening shifts and asking workers to take unpaid leave – an increasingly common practice that has become a hidden deflationary force in the world’s second-largest economy. “We’re in survival mode,” said the 53-year old, adding that his company, Cartia Global Manufacturing, in the southern city of Foshan, “barely breaks even.” “I told them, you don’t want our factory to go broke. You’ve worked here for 10-15 years, let’s do it together.” China’s headline unemployment rate has held around 5% as US President Donald Trump raised tariffs on imports from China by 30 percentage points this year. Washington and Beijing extended on Monday a tariff truce for another 90 days, during which tariffs will not return to April’s triple-digit levels. o Underemployment spreads as manufacturers swap full-time jobs for low paid, temporary contracts

Singapore raises 2025 GDP forecast after Q2 beats estimates SINGAPORE: Singapore’s economy grew slightly faster than initially estimated, prompting the government to upgrade the city state’s growth forecast for this year even as it warned of downside risks.

Economists caution that uncertainty and potential trade shocks could weigh on Singapore’s growth in the months ahead. – PEXELS PIX

Despite having a free-trade agreement and running a trade deficit with the US, the wealthy financial hub has still been slapped with a 10% tariff rate by Washington. President Donald Trump has also said he would impose a tariff of about 100% on imports of semiconductors, with an exemption for companies that are manufacturing in the US or have committed to do so. – Reuters

“I would also add that a gradualist approach under conditions of uncertainty is useful as we update our assessment in a timely manner at our quarterly reviews,“ he said. In a separate statement, Enterprise Singapore said it was keeping its forecast for non-oil exports at growth of 1% to 3% this year, saying it expected some weakness in the second half after a stronger-than-expected start to 2025.