Taiwan Industrial production growth falling to zero

Taiwan's industrial production (IP) growth decreased to 1.1% yoy in April from 6.7% yoy in March, as external demand deteriorated. 

Trade data in May showed an improvement in real terms. That said, if we combine the April and May data to smooth out the volatility, real export growth dropped sharply to -0.3% yoy from 4.6% yoy and real imports decelerated from 2.7% yoy to 1.8% yoy. 

Moreover, lending growth slowed for the third consecutive month to 3.1% yoy, the lowest in 16 months. 

The weak credit demand despite abundant interbank liquidity suggests domestic investments continued to decelerate. Against the backdrop of falling external demand and investments, we expect IP to remain weak. 

A negative base effect will probably drag IP growth down to zero in May from 1.06% yoy in April. Meanwhile, commercial sales are expected to have decelerated further to -3% yoy in May from -2% yoy, mainly driven down by wholesales as economic momentum weakened.