Taiwan export orders shrink in July; momentum of growth recovery remains dull

Export orders in Taiwan shrank during the month of July, remaining below what markets had earlier expected. However, it remained above the average during the second quarter. Despite this, the momentum of growth recovery is undeniably weak and a weaker-than-expected recovery could dampen risk sentiment in the financial markets.

Taiwan’s export orders shrank -3.4 percent y/y, worse than the -2.4 percent in June, albeit still better than the 2Q average of -6.4 percent. Likewise, industrial production slipped -0.3 percent in July, also down from the 1.1 percent in the prior month. It was the first time industrial output contracted after posting two consecutive months of positive growth in May-Jun.

On a seasonally adjusted m/m basis, export orders managed to rise 1.2 percent in July and industrial production also increased 0.4 percent. The private sector PMI also held firmly above 50 as of last month, confirming that the manufacturing sector remained in the expansionary mode.

However, the momentum of growth recovery is undeniably weak. Even in the electronics sector where the peak season demand is widely expected, the signs of recovery are not very apparent. Export orders for electronics components fell -1.8 percent y/y in July after rising 1.5 percent in June. Industrial output in this segment grew 5.9 percent in July, a slower pace compared to 6.9 percent in the previous month.

"We maintain our GDP growth forecasts below the government’s, at 0.9 percent for 2016 and 1.8 percent for 2017," DBS commented in its recent report.

Meanwhile, the USD/TWD has reverted to the range of 31.5-32.0 since 19 August, after dipping below 31.5 temporarily earlier this month. In the absence of key data release on the domestic calendar through the rest of this week, the USD/TWD will largely depend on the dollar’s movement and the Fed’s policy outlook, the report added.