Weakness in Taiwan’s economic momentum to be temporary

Taiwan's Q1 GDP growth dipped slightly to 3.4 yoy in Q1 from 3.5 yoy in Q4 2014. That said, the composition of growth shows external demand weakened further and the recovery in domestic demand was weaker than anticipated. Activity data in Q2 continued to disappoint: real trade, industrial production and more worryingly real retail sales all decelerated. 

The expected recovery in the external demand in the second half, led by the US, is likely to raise Taiwan's growth again. Therefore, Societe Generale expects the weakness in economic momentum to be temporary. 

CPI inflation remained negative at -0.7% yoy in May, largely unchanged from -0.8% yoy in April. Core inflation also weakened further to 0.6% yoy in May from 0.7% yoy in April. However, both measures are poised to bottom out in one or two months. In Q4, headline CPI inflation is expected to turn positive while core CPI inflation is likely to re-strengthen, estimates Societe Generale.