Taiwan Q2 GDP seen at 1.5 pct y/y, owing to slowdown in exports and investment: DBS Bank

Taiwan’s second quarter GDP (preliminary), due this Friday is expected to witness a growth of 1.5 percent y/y, lower than the 2.6 percent in the first quarter. The high-frequency indicators suggest that output growth has slowed notably in 2Q, led by exports and investment.

Industrial production grew only 0.4 percent y/y on average in Apr-May. Even assuming a strong rise to 4 percent in June, industrial output will only register 1.6 percent in the Q2. Reflected on the demand side, exports growth has slowed to 6.1 percent in real terms during the Apr-Jun period, down from 10.5 percent in Jan-Mar. Capital goods imports, a key indicator for investment, also fell sharply to -1.1 percent, from 20.4 percent. Consumption appears to have picked up, but not enough to offset the weakness in exports and investment.

Retail sales, for instance, grew marginally by just 0.3 percent in Apr-May. Having said that, some leading indicators suggest that the Q2 slowdown was temporary and a resilient rebound lies ahead in H2 2017. Export orders have returned to double digit growth in June (13.0 percent) after staying soft in Apr-May.

The rebound in electronics orders is especially a positive sign, affirming that this sector will enter the peak season and regain momentum soon in Q3. Consumer confidence has also showed an improvement in recent months. The negative impact of pension reforms has started to ease.

"Given the government’s fiscal stimulus plan (infrastructure spending) and the central bank’s bias towards maintaining an accommodative monetary policy, it is reasonable to expect a further, albeit modest recovery in domestic demand in 2H17-2018," DBS Bank commented in its latest research report.

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