Taiwan’s GDP growth probably turned negative in Q3 due to temporary drag from inventories

Taiwan's GDP growth declined sharply to 0.5% yoy in Q2 from 3.8% yoy in Q1, mainly driven down by net exports. Real exports and imports continued to decelerate in Q3. However, due to a sharper fall in imports than exports, the negative contribution from net exports likely narrowed. Regarding the domestic economy, consumption growth is likely to have weakened modestly from 2.9% yoy in Q2 to 2.5% yoy in Q3, given softer wage growth and cooling confidences. 

Government spending growth likely dropped on lower revenues. The two together are expected to have offset most of the increase brought by net exports. Meanwhile, investment growth is likely to have strengthened from 1.3% yoy in Q2 to 6% yoy in Q3, as indicated by the resilient capital goods imports. However, inventories are likely to have seen a significantly lower increase in Q3 after a strong Q2. 

"We expect the contribution from inventories to GDP growth to have turned negative and shaved around 1.8pp off the yoy growth rate", notes Societe Generale.