Taiwan technical recession looms with latest exports tumble

December exports expanded only 0.6% yoy from an already slow 1.3 growth in November.

According to RBS, the island nation registered negative GDP growth in Q3, and this latest exports slowdown may lead to a consecutive contraction in Q4 as major trading partners Europe, China and Hong Kong cool their demand.

Here's more from RBS:

December exports grew 0.6% yoy (3.7% expected) decelerating further from the 1.3% recorded in November. Exports were down 7.2% qoq, sa over the previous quarter—the same order of magnitude as the Q3 contraction. This could mean another quarter of negative GDP growth and, hence, a technical recession. Looking at export data in USD, there is little indication that exports have bottomed.

Exports to Europe (accounting for roughly 20% of exports) suffered more than proportional, but also exports to China and Hong Kong (accounting for 40%) were down on a year ago. Exports to other Asia (accounting for 20%) stood out in that they were still growing at 10.4% yoy.

The export weakness was matched by weak imports, down 2.7% yoy. This reflects weak imports of capital and intermediate goods as firms adjust to the bleak global outlook.

The resulting trade balance came to a respectable USD 2.3 billion (Figure 1). This sets Taiwan up for a current account surplus of about 8% of GDP in 2011. This is weaker than the 9% of GDP recorded in 2010, but still high for a country with Taiwan's fundamentals (e.g. high oil deficit, aging population) and could be taken as indication for an undervalued exchange rate.

Notwithstanding global headwinds and disappointing trade data, we don't expect CBC to cut the policy rate anytime soon. The global economy is likely to avoid a recession and even if Taiwan enters into a technical recession, the cycle hasn't turned. If CBC cut the rate now there is a good chance it would have to hike again before long, a scenario it will want to avoid. We expect the interest rate to remain on hold throughout 2012.

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