Moody’s Analytics reports a week marked by diplomatic dialogues, mixed economic data across Asia-Pacific, and a decisive monetary policy move in India. Global markets were focused on the ongoing economic fallout from the U.S.-China trade relationship and signs of fragility across key regional economies.
U.S.-China trade truce under scrutiny
Grievances over perceived violations of the May trade truce prompted a phone call between U.S. President Donald Trump and Chinese President Xi Jinping. While both sides indicated some progress on addressing mutual concerns, Moody’s Analytics notes that the anticipated economic rebound in China remains elusive.
The manufacturing Purchasing Managers’ Index (PMI) for May edged up by only 0.5 points to 49.5, remaining below the neutral threshold of 50 and indicating continued contraction. Meanwhile, China’s non-manufacturing PMI inched down to 50.3, suggesting fragile momentum in services and construction.
“The marginal gains in output and orders are not enough to signal recovery,” said Moody’s Analytics. The trade data due later this week is expected to show a slightly lower trade surplus of around $95 billion, down from April’s $96.2 billion.
South Korea prioritizes economic revival
In South Korea, newly elected President Lee Jae-myung from the Democratic Party wasted no time laying out his economic vision. In his inaugural speech, Lee warned that global protectionism and fragmented supply chains pose existential threats to Korea’s economy. He promised “massive investment” in artificial intelligence and semiconductor sectors to fortify national competitiveness.
The urgency was underscored by May trade data, which showed exports to the U.S. falling 8.1% year-over-year and total exports slipping 1.3%. However, imports dropped even more sharply, by 5.3%, resulting in the largest trade surplus since June 2024.
Australia and Thailand show weakness
Australia’s GDP growth for the March quarter disappointed, expanding only 0.2% quarter-over-quarter, below Moody’s Analytics’ forecast of 0.6%. Government spending was flat, and the economy contracted 0.2% on a per capita basis, indicating softness beneath the surface.
Thailand’s consumer price index (CPI) fell 0.6% year-on-year in May, marking the second consecutive monthly decline and reflecting persistent demand weakness.
India cuts interest rates aggressively
The Reserve Bank of India delivered a surprise 50-basis-point cut, lowering the repo rate to 5.5%. Moody’s had forecast a 25-basis-point reduction. With cumulative rate cuts totaling 100 basis points this year, the central bank aims to insulate the Indian economy from external shocks, particularly U.S. tariffs and global growth headwinds.
Vietnam remains resilient
Vietnam’s May data showed resilience: CPI rose to 3.2% year-on-year, industrial production expanded 9.4%, and the trade surplus held steady at $600 million. While retail sales growth slowed slightly to 10.2%, it remained in double digits, signaling ongoing consumer strength.
Key takeaways
- China’s manufacturing sector remains in contraction, with PMI at 49.5 despite partial tariff relief.
- South Korea’s new president vows heavy investment in tech to counter global protectionism and falling exports.
- Australia’s economy underperforms, with per capita GDP shrinking and government spending stagnating.
- Thailand’s deflation signals weak demand, with CPI declining for a second straight month.
- India surprises markets with a 50-basis-point rate cut, citing inflation relief and global risks.
- Vietnam posts solid economic indicators, despite a modest slowdown in retail sales growth.