Episode Details

Kia ora.

Welcome to Tuesday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.

I'm David Chaston and this is the international edition from Interest.co.nz.

Today we lead with news the scale of Trump's strategic failure with Iran is becoming clearer. Iran holds the key cards, it seems, and there is little but bluster and renewing its military flailing he can do about it. Even Israel seem to be ignoring Trump's potency, which is another signal of regional chaos.

Iranian media reported that Tehran had suspended communications with Washington, following the attacks in Lebanon, and will move to fully close the Strait of Hormuz - and open new fronts in their war pushback.

We are just going to have to live with the resulting chronic mess. And that probably means elevated inflation for much longer and all that brings with it - like supply chain disruptions and logistic twists.

Stockpiling, itself an indication of economic inefficiency, is the current way the global economy is reacting, in turn an inflation enhancer.

First today in the US, that stockpiling is showing up in their two May factory PMI reports. The S&P Global version recorded output growth rose to its strongest level since April 2022 as buyers scramble to beat price rises and supply delays. Input costs rose at their fastest rate since mid-2022. Meanwhile the ISM version reported very similar conditions, even if at a slightly lesser level.

In Canada, their factory PMI version reported that growth was sustained in May as output, new orders and employment all rose. But like in the US, this is all trying to beat the cost pressures and supply chain challenges that are intensifying.

In Japan, their May factory PMI remained unusually strong. But firms there signaled further strong increases in production with sales Input costs and selling prices rising at some of the steepest rates on record. Stock building efforts are still very much in evidence amid the ongoing and substantial supply chain disruptions.

In South Korea, their factory upturn, already strong, gathered more pace amid stockpiling efforts. Output rises are their strongest in five years. Price pressures persist and remain near record highs. Meanwhile jobs growth is now at its highest since March 2013 as the outlook improves.

Meanwhile Korean exports surged +53% from a year ago to a record US$88 bln for the month. (For perspective, New Zealand exports run at about US$6 bln per month average. Australia is about US$32 bln/mth.) Their biggest increases were to China, although there were outsized export gains to the US. Their explosive growth is largely around their IT sector.

In Taiwan, their factory output expanded at quickest rate