Taiwan June export orders forecast to be down 0.2%

Sequential growth is likely to remain sluggish, says DBS.

DBS Group Research noted:

June export orders (due today) are expected to register -0.2% YoY. While the magnitude of the year-on-year contraction would narrow compared to in May, this should be largely helped by the low base effects. The sequential growth is likely to remain sluggish.

As indicated by global PMIs in June, demand from the US deteriorated, European demand was persistently weak, although industrial activity in China appeared to have stabilized. A weak result in June export orders will cast shadows on the 3Q outlook.

The year-on-year growth in major economic indicators including exports, industrial production and GDP will pick up from 3Q onwards, due to the low base last year. Sequential wise, when growth can return to the long term trend is still a question.

The statistics agency will certainly cut its annual GDP growth forecast to below 3% when releasing the 2Q GDP report on July 31. The question is no longer about whether the economy can meet the 3% growth target, but about the 2% threshold.

The central bank has been fine tuning monetary policy since last week, guiding down the overnight interbank rate to 0.4% from 0.5%, completely withdrawing the liquidity tightening measures adopted in 2Q in response to the inflation risks caused by fuel price hikes. While it is not our core view that the CBC will cut the benchmark rate at the next MPC meeting in September or even prior to that, the possibility of a rate cut is indeed growing.

On fiscal policy, the finance ministry has been focusing on the medium term target of fiscal consolidation so far this year (fuel/electricity price hikes, capital gain taxes). It remains to be seen whether the government will switch the emphasis of fiscal policy when announcing the annual budget for 2013 next month.