Taiwan: Exports rebound marginally in June, but May export orders indicate lingering demand weakness
Merchandise exports increased 0.5% year-on-year in June, contrasting the 4.8% fall registered in May and interrupting seven consecutive months of decline in Taiwan’s critical trade sector. Nevertheless, export orders—which typically lead actual exports by two to three months—fell 5.8% year-on-year in May, down from the 3.7% yoy fall logged in April and suggesting Taiwan’s external sector will remain plagued by weak demand in coming months.
Looking at the details, the June print showed some positive news. Exports of electronic product parts—accounting for just under a third of total shipments—extended the slight rebound logged in May and even picked up pace, though this was in part due to a low base effect. In addition, exports of information, communication and audio-video products again grew at a strong pace, though slightly more slowly than in May. Lastly, the contraction in exports of other main product categories—mainly base metals, machinery, and plastics and rubber—softened compared to the previous month. On a geographical basis, exports to mainland China, Hong Kong and the ASEAN area—which together account for more than half of total shipments—contracted at a slower pace, while export growth to the U.S. accelerated significantly.
Meanwhile, imports also rebounded solidly in June, rising 6.6% yoy and contrasting the 5.9% yoy contraction logged in the prior month. The 12-month trailing sum of exports fell 0.9% yoy, down from a 0.2% contraction in May, while growth of the 12-month trailing sum of imports fell from 5.7% in May to 5.0% in June. Lastly, the trade surplus fell to USD 3.9 billion from USD 5.2 billion in June 2018 (May 2019: USD 4.5 billion), while the 12-month trailing trade surplus declined to USD 44.0 billion in June, from USD 45.3 billion in May.
Commenting on the reading, Iris Pang, greater China economist at ING, noted that “we believe that structural issues tied to the smart phone product cycle and weak demand for these products will continue to impact Taiwan’s manufacturing and export sector. […] Exports of smart phones in August and September will be an important indicator of how well the economy can ride out this low demand cycle. If sales over this period don’t exceed last year’s exports, 2019 as a whole could see exports shrinking, which will directly hit the economy.” However, she added that prospects for the external sector would likely improve in 2020, as “5G could be the future engine of Taiwan manufacturing” and Western governments’ distrust of Chinese 5G equipment manufacturers—such as Huawei—could prove a boon to Taiwan’s competitive position in the sector.