Taiwan: Exports post fifth consecutive contraction in March; orders suggest weakness will persist in Q2
Merchandise exports fell 4.4% in annual terms in March, logging the fifth consecutive decline following February’s 8.8% dip. This further contraction reflects the cyclical factors currently weighing on the Taiwanese trade sector, chief among them being a downturn in the demand for tech products, the ongoing effects of the U.S.-China trade war and an economic slowdown in the mainland. Moreover, February export orders, which usually lead actual exports by two to three months, also declined 10.9% year-on-year (January: -6.0% yoy), the sharpest slump in nearly three years. This strongly suggests that Taiwan’s crucial export-oriented sector will remain feeble throughout the second quarter, boding ill for the broader economy in the period.
As in previous months, the March print was led by lower shipments of parts of electronic products, which account for just under a third of Taiwan’s total exports and contracted at a sharper pace than in February. On the flipside, exports of information, communication ad video products soared by nearly a quarter year-on-year, while exports of machinery, base metals, and plastics and rubber recorded softer contractions than in February. On a geographical basis, the contraction in exports to mainland China and Hong Kong—Taiwan’s largest export market—worsened and drove the tumble. On the other hand, exports to the ASEAN region fell at a softer clip, and growth of U.S.-bound shipments soared.
Meanwhile, imports rebounded notably in March, rising 6.6% yoy after a 19.7% contraction in February, which Ma Tieying, economist at DBS, interpreted as a positive sign for business momentum, noting “we were particularly encouraged by a strong rebound in Taiwan’s capital goods imports to 34.9% from 4.5%; the sector is a leading indicator for machinery investment”.
Growth of the 12-month trailing sum of exports fell from 4.1% in February to 2.4% in March, while growth of the 12-month trailing sum of imports fell from 7.8% in February to 7.5% in March. Lastly, the trade surplus fell to USD 3.1 billion in March from USD 6.0 billion in March 2018 (February: USD 4.9 billion), while the 12-month trailing trade surplus fell from USD 49.7 billion in February to USD 46.8 billion in March.
Turning to the outlook, it appears that “growth may bottom out in the months ahead”, according to Ma Tieying. Indeed, she argues, “the tech sector may have troughed in the short-term. Apple has, in a bid to regain market share, been pushing for iPhone price cuts in the Chinese market […] and there is anecdotal evidence that the orders for chips, cameras and other electronic components from Chinese tech companies may have picked up”. In addition, “China’s economic slowdown worries appear to have subsided from signs that the moderate stimulus package adopted since late 2018 has started to work”. This suggests cautious optimism for a trade-sector rebound in H2 2019, though this will partly hinge on progress in U.S.-China trade talks.