Sluggish exports weigh on Taiwan's 4Q GDP

The trade data out yesterday were far weaker than expected. Contrary to the consensus forecast of an improvement, exports fell further by -16.9% (YoY) in Nov15, a deeper decline compared to -11.0% in Oct15. On the sequential basis, the contraction was also significant, at -5.5% (MoM sa). As a result of falling exports, trade surplus shrank to USD 2.8bn, the lowest level over five months. 

So far, the seasonal demand for electronics products has been reflected in export orders, but not actual exports. In addition to the time lag effects, the gap between the two could also be due to structural reasons - the rise in Taiwanese manufacturers' overseas production ratio, and the expansion of electronics supply chains in offshore production bases (especially in China). It is suspected that both temporary and structural factors have been at play. The recovery in exports (and industrial production) could remain slow and lagging for quite some time. 

The direction implication of sluggish exports and falling trade surplus is that the 4Q GDP would be weaker than expected. Growth may stay in the negative territory on the YoY basis for the second consecutive quarter, which continues to fuel the talk about a recession. Pressure remains for the central bank to ease monetary policy. The benchmark discount rate is expected to be lowered by another 12.5bps to 1.625% at the upcoming policy review on 17th Dec.