Taiwan May export orders likely to decline on sluggish global growth, weak demand

Taiwan’s export orders for the month of May is likely to decline, following sluggish growth among global economies amid weak demand that tweaked a downside roadmap for Taiwanese exports. This would be the 14th consecutive month of decline, longer than the 12-month continuous fall witnessed during the financial crisis of 2008-09, the Ministry of Economic Affairs of Taiwan (MOEA) said Sunday.

Export orders are expected to post a decline of -7.5 percent y/y, smaller than the -11.1 percent in April. Likewise, industrial production may decline more moderately in May by 1.2 percent versus -4.1 percent in April, also helped by the base effects. As a lagging indicator, the jobless rate has started to crawl upward since the end of last year and is expected to continue doing so in May, the report mentioned.

Meanwhile, the Brexit referendum scheduled to take place late this week has exerted further pressure on external demand, causing heightened volatility in global financial markets. This is also expected to have negative spillover effects on the global real economy.

Taiwan's export orders fell for the 13th consecutive month in April, when they were down 11.1 percent from the same period a year earlier, and the streak is expected to continue in May, a ministry official said. Positive year-on-year growth in export orders is unlikely until the second half of the year, he added.

The MOEA had forecast that the value of export orders received in May by Taiwanese companies could be close to the USD33.16 billion received in April, but the official pegged the likely decline at about 7-8 percent.

"A pickup in the deleveraging and destocking process among Chinese companies would further depress China’s imports demand for raw materials and capital goods," DBS said in a research note.

However, the central bank of Taiwan is expected to pay close attention to the downward trend stemming from the global economic and financial turmoil. It has advocated a total of 37.5 basis point cut since the second half of 2015. While consumer loans have been boosted by lower borrowing costs, total loan growth still remains subdued as corporate demand is weak.

Meanwhile, rate reductions are needed to spur credit growth and bolster consumption and investment. A 12.5 basis points rate cut in June is expected and another one in September, which will bring the benchmark discount rate back to the 2009 low of 1.25 percent, DBS noted.