Taiwan's growth outlook in 1H16 will be very challenging

Taiwan's leading indicator for exports deteriorated further. The data showed that export orders plunged -12.3% (YoY) in December15, far worse than -6.3% in the previous month. As the seasonal demand for electronics products faded rapidly, orders from the US and Europe fell sharply. The demand from China continued to contract compared to a year ago, though stabilizing on the MoM basis. The disappointing orders data completely offset optimism from the recent PMI surveys, and dampened the hope for a recovery in exports in 1Q16. 

The domestic demand is unlikely to pick up the slack. The current cabinet has resigned after the KMT suffered a landslide defeat at the 16 January elections. The new cabinet under the DPP will not be formed until end-May. Fresh policy stimulus is unlikely during the interim period. The scale would be small as public debt is close to legal limit and curbing debt growth is part of the DPP's election pledges, even if a stimulus package were to be rolled out later this year in 2H. The growth outlook in 1H16 will be very challenging, in the lack of supports from both exports and domestic demand. 

"We will review our GDP growth forecasts after the release of 4Q15 estimate next week", says DBS Group Research.