Taiwan’s strong May export orders may not be sustainable

TAIPEI - Strong gains in Taiwan’s May export orders were broad-based, with strength seen in export orders for electronic products (+14.0% y/y) complemented by the traditional sectors – base metals (+14.8% y/y), chemicals (+22.6% y/y), and plastic articles (+17.2% y/y). Export orders for information and communication technology (ICT) products also rose in May (+4.2% y/y) after three straight months of decline.

ANZ Bank says that, despite uncertainties stemming from threats of trade protectionism, orders from the U.S. increased by 8.3% y/y, while producers in Mainland

China also stepped up demand (19.2% y/y).

“The data today may bode well for Taiwan’s exports in Q2, and help boost GDP growth during the quarter,” the bak says in a research note.

“The contribution from the trade sector to Taiwan’s GDP growth had dropped to 1.0% in Q1 2018 from 3.1% in Q4 2017 due to volatile growth in exports.

“However, better-than-expected export orders in May indicate steady export performance in Q2, providing some upside surprise to GDP growth during the quarter.

“Nonetheless, strong momentum in export orders may not be sustained in the coming months due to ongoing uncertainties from the China-U.S. trade dispute and a cyclical downturn in the smartphone industry.

“The Ministry of Economic Affairs has forecast export orders growth to slow to 2.8-5.3% y/y in June. If there is a further escalation in China-U.S. trade tensions, we believe the weakness may not be limited to the semiconductors segment because China’s exports to the U.S. require a sizeable portion of Taiwanese intermediate and capital goods exports.

“The Taiex index, the semiconductor industry index, contracted 5.1% m/m in May, signalling a possible cyclical downturn in the ICT sector.”  www.live.anz.com (ATI).