Taiwan's industrial production slipped 1% in April

Analyst predicts economy to remain stagnant.

According to DBS, there are now signsthatthe second quarter growth would be weaker than expected, largely dragged by inventory destocking.

DBS noted that industrial production slipped in April (-1.0% MoM sa), and the inventory ratio in manufacturing sectorrose slightly above 1.0. If without a strong pickup in final demand, destocking pressures will continue to weigh on output growth in the shortterm. 

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Risks are therefore increasing that the 2Q GDP growth will remain stagnant compared to 1.7% YoY in 1Q, and the annual GDP growth figures will fall to 2%+ due to the weaknessin the entire first half ofthe year.

That said, there is no change in our view regarding the economic outlook ahead. Itis demand that drivessupply. Asfar as demand is concerned, exports and net exports are still expected to improve.

Export ordersrebounded in April (2.7% MoM sa), although the rise remained modest and actual export performance continued to lag. Importsreceded on the other hand.

The drop in in raw materialsimports as a result oflower commodity prices was nominal. But imports of machinery and electrical equipment, in realterms, also fell in April (-2.1% MoM sa), as capitalspending amongstthe high-tech manufacturers has cooled down.

Despite slowing investmentin the manufacturing sector,total investment should have maintained moderate, positive growth in 2Q. Construction investment, which accountsfor near 50% of grossfixed capital formation, has remained strong.

The floor area permitted for building construction surged in April (30.5% MoM sa), mainly in the segment of housing (ratherthan factories & industrial properties), probably driven by the upturn in Taiwan’s property market.

Consumption growth hasremained slow in 2Q – retailsales continued to move sidewaysin April. The recovery outlook isstill intact, however. The labour market has remained stable, with the joblessrate standing at 4.2% forthe sixth consecutive month in April.

Consumer confidence rose further by 1pptin May,the highest over 12 months(since the governmentraised energy prices in Apr12).

The government’srecent hike of minimum wages, the proposal of exempting capital gainstax forindividual investorsin the stock market, and the easing ofsupply-side inflation should help to support consumersentiment and actual consumption spending in the coming months.