Taiwan's May IP weak, but late summer turnaround still in place

Taiwan's industrial production contracted by 3.2% y/y in May (Apr: 1.3%; Mar: 6.7%), the weakest print since March 2013. The release also came in significantly weaker than consensus' forecast (1.4%). On a seasonally adjusted m/m basis, production extended the softness from April and fell 2.0% (Apr: -3.7%; Mar: 0.6%), the second straight contraction.  

Overall, the extended period of activity weakness was driven by a soft patch in overseas demand for PCs and handsets, which led to precautionary trimming across the EM Asia supply chain. Indeed, in the first four months of this year, Asia to DM exports grew 1.2% on a 3mma basis, while Asia-to-EM fell 1.8%.  Weak demand, especially from China, explained part of the demand softness. 

However, heightened currency volatility in both EM and DM further compressed intra-EM exports, forcing Asian producers to lower production level to avoid inventory buildup. 

According to Barclays, "Taken together, the more muted acceleration in momentum in Q2 (to 0.9% instead of 1.2%) has dimmed the growth path modestly. As such, we recently lowered our 2015 and 2016 growth forecasts by 30bp, to 3.7% and 4.0%, respectively".