Taiwan’s trade growth likely to have contracted in May; CPI inflation probably softened

With the help of positive base effects, trade growth of Taiwan recovered considerably in April. However, April’s improvement is likely to have reversed in May as growth in export and import is expected to have contracted again, said Societe Generale in a research report. Furthermore, weakness in external demand appears to have remained. In April, export orders had declined 11.1% y/y following a drop of 4.7% in the prior month. The decline in orders was driven by electronics, which is the most vital export industry.

The weakness is just for a brief period of time; however, it does point towards the risk on the downside that the recovery in electronics exports will not be able to be sustained. Given the solid headwinds from external demand, the Taiwanese central bank is likely to further lower rates in June, added Societe Generale.

Meanwhile, Taiwan’s headline CPI inflation is expected to have weakened slightly, remaining at over double the levels registered in January. Recovery in oil price has kept the CPI inflation from decelerating at a rapid pace. Meanwhile, core inflation has also strengthened slightly of late. CPI inflation figures are likely to have been supported by positive base effects in April and May, and also a rise in prices for healthcare services.

However, the firming of core CPI inflation does not appear to be wide-spread or sustainable, noted Societe Generale. This is because durable goods CPI and overall services CPI have remained flat in the past few months. Inflationary pressures continue to be weak given the weak growth in wages, supporting the argument for the possibility of an additional rate cut.