Taiwan August exports likely to rise, remain higher than the Q2 average

Taiwan’s growth in exports during the second quarter of this year is expected to rise, although no big surprise is yet anticipated. It is likely to remain lower than the previous month’s figures, but higher than the Q2 average.

Exports growth is expected to rise 0.7 percent y/y in August 2016, lower than the 1.2 percent in July 2016 but higher than the 2Q average of -6.2 percent, DBS reported. Export orders and industrial production both softened in Jul16, pointing to a slowdown in export shipments in the subsequent month.

That said, the big picture remains that exports and manufacturing activities have started to recover, at a slow pace. This could be confirmed by the latest PMI, which posted an above-neutral reading of 51.8 in Aug16, slightly up from the 51.0 in Jul16.

In addition, headline consumer price index eased to 0.6 percent y/y in August, a notable drop compared to 1.2 percent in Jul16 and the peak of 2.4 percent in February. Food prices have retreated as weather conditions fully normalized, which largely explained the swings in headline CPI numbers.

Further, core CPI remained at 0.8 percent in August, a steady rate compared to in the first seven months this year. With both the headline and core inflation staying below 1.0 percent, there is the room for the central bank to trim rates from the current level of 1.375 percent.

Meanwhile, despite the nascent improvement in trade/manufacturing data, the central bank would remain concerned about the risk of L-shaped growth as the momentum of recovery is weak and the output gap remains significantly negative.

"We look for a 12.5bps rate cut at the monetary policy meeting at the end of this month," DBS commented in its recent research note.