Bad news ahead for Taiwan

More downgrades by market analysts are expected as exports orders likely to have declined.

DBS Group Research noted:

May export orders are expected to show a year-on-year contraction for the fifth month in a row (excluding the Lunar New Year). We forecast -3.4% YoY, a similar rate of decline compared to -3.5% in April. The month-on- month growth in export orders may have also slipped in May, although not dramatically, in line with the synchronized slowdown in global PMI.

Besides the cyclical headwinds from a slowing global economy, there are additional factors weighing on Taiwan’s exports. These include 1) the relatively high degree of trade exposure to China, where a structural slowdown in economic growth is ongoing, 2) the trend of a strengthening Taiwan dollar versus the Korean won ever since the global financial crisis in 2008, 3) the tariff and non-tariff barriers facing Taiwanese exporters in major markets, as Taiwan’s progress of promoting free trade has lagged behind that of its Asian peers including Korea and ASEAN.

The prolonged weakness in exports will drag the overall growth performance. We expect real GDP growth to remain positive but below the trend rate of 4% in 2Q-3Q, concluding the full year of 2012 at 2.0%. The consensus forecast for the annual growth in 2012 recently has been cut to 2.7%, down from 2.9% one month ago. More downgrades by market analysts could be on the horizon.