Taiwan's leading indicators would remain weak

The export orders, an important leading indicator for exports and industrial output, are due today. Close to the -6.3% in November15, a year-on-year contraction of -6% is expected for December15. For the whole year, export orders are expected to register -3.9%, the first negative annual growth rate seen since 2009. 

The demand from China is likely to remain weak, given the further slowdown in China's GDP growth in 4Q15 and the heightened volatility in its financial markets of late. Meanwhile, demand for electronics products may start to level off as the festive season has passed. Apple is likely to cut production sharply in 1Q16 serve as reminder of the downside risks in this sector. 

Taiwan's exports is concentrated in the Chinese market and in electronics products. To lower the related vulnerabilities, the upcoming new government is likely to pursue a diversification strategy, expanding Taiwan's trade and investment ties with other countries and fostering the growth of new industries. But structural adjustments will take a long time and a success is not guaranteed. In the short-term, cyclical headwinds will continue to dominate, presenting challenges for the outlook of exports and the overall economy.