Asia Brief: Fair Yuan, Korean Outlook, Singapore Surge

The Chinese yuan is fairly valued, according to the IMF, while South Korea sees an improved economy and Singapore stuns analysts with growth nearly three times better than expected.

In China, the once controversial value of the yuan has become more reasonable, according to the International Monetary Fund. The group says that the Chinese currency is “no longer undervalued” as “real effective appreciation over the past year has brought the exchange rate to a level” that is fair for all parties, the IMF said in a statement.

The Chinese yuan is fairly valued, according to the IMF, while South Korea sees an improved economy and Singapore stuns analysts with growth nearly three times better than expected.

In China, the once controversial value of the yuan has become more reasonable, according to the International Monetary Fund. The group says that the Chinese currency is “no longer undervalued” as “real effective appreciation over the past year has brought the exchange rate to a level” that is fair for all parties, the IMF said in a statement.

The Chinese government has been accused of currency manipulation for over a decade, particularly from the United States who argues that its artificial depression of the yuan’s value has given Asia’s largest economy an unfair trade advantage. Several competing export-driven countries have asserted much the same in recent years, but the IMF says this is no longer the case.

However, the IMF urged China to be more flexible in its currency controls and to enact reforms “to reduce excess savings and achieve sustained external balance.” The comments allude to the country’s foreign exchange reserves, which at over $3.7 trillion are the world’s largest by a wide margin.

Korea Outlook Improves

Once the darling of East Asia and praised for largely avoiding the global financial crisis of 2007-2008, South Korea has seen growth slow and demand weaken. However, the Bank of Korea said in a report released Friday that “economic activities improved modestly during April and May 2015” compared to the first quarter, with more strength in manufacturing and services.

The country’s IT-driven economy has seen a pickup in demand, the central bank said, as “semiconductors and mobile phones” manufacturing and service production “were found to have grown slightly.” Additionally, the bank expects that growth to maintain its momentum.

However, overall exports declined in recent weeks, but the Bank of Korea says, “private consumption and construction investment increased slightly,” offsetting the export headwind.

Singapore Stuns

The largest surprise in Asian economic news this week came from Singapore, where economic growth was far above expectations.

According to the Ministry of Trade and Industry, Singapore’s economy grew at an annualized 3.2% seasonally adjusted rate, far above expectations of just 1.1% growth.

The majority of the unexpected growth came from strength in wholesale and retail sales, with domestic demand helping the city-state see a rise in economic activity. That trend offset a fall in manufacturing, which declined 2.7%. Services industries rose to 3.8% growth on an annualized basis, above previous estimates of 3.1% growth.

The weakness in exports, combined with continued weakness in exports from Korea, may indicate Asian exports will remain weak throughout the second quarter. According to one note from a European investment bank in Asia, the region faces “transitory factors” but greater fiscal spending as regional governments attempt to improve demand could lift growth in the coming months.