How reduced business days during CNY could influence the economy

This year, the Lunar New Year holiday is in February, unlike last year's start in January.

As Singapore steps into the Year of the Dragon, economists warn of significant distortions in economic data due to the Lunar New Year effect, a phenomenon that complicates the interpretation of early-year statistics.

The holiday's timing in February this year, as opposed to January last year, is expected to skew various economic indicators, reflecting the impact of reduced working days and shifting consumer behaviours.

"It is not uncommon for factories to shut down days before the holiday officially starts to allow workers to return to their hometowns. Many Asian countries will therefore have fewer working days this February than in February 2023, and vice versa for January. As businesses close, production slows and festivities ramp up over the impending holiday," Nomura said in its report.

According to Nomura Singapore Ltd.'s research analysts, Sonal Varma and Si Ying Toh, industrial production could see an average distortion of -9.7 percentage points, with non-oil domestic exports and imports also significantly affected. The trade balance is anticipated to show a -$346m average distortion, whilst retail sales might see an average distortion of -5.3 percentage points. However, the PMI is expected to remain unaffected, indicating no average distortion.

Nomura's examination is based on averaging the year-on-year growth rates or levels for specific economic indicators over January and February for each of the eight occasions when the Lunar New Year holiday fell in different months in successive years. By comparing the Lunar New Year month's reported growth rate with the average underlying growth rate, analysts have been able to estimate the holiday's impact on Singapore's economic data.

Beyond the local effects, the region's trade data might also suffer from ongoing shipping disruptions in the Red Sea, potentially exacerbating the Lunar New Year distortions. These disruptions could lead to higher import costs and delayed export shipments, further complicating the economic outlook for the early months of 2024.

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Nomura

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