Taiwan GDP under threat of measly growth

But at least the expected 0.7% growth is still better than last quarter's.

According to DBS, the preliminary estimate of the third quarter GDP will be announced tomorrow morning. A modest positive growth of 0.7% YoY is expected, slightly better than the -0.2% decline in the preceding quarter.

Here's more from DBS:

The QoQ GDP growth should have also improved marginally, mirroring the mild rebound in industrial production and real exports during the Jul-Sep period.

While exports and inventory restocking should have helped to support the 3Q GDP, domestic demand has remained sluggish.

The high frequency indicators for investment, including capital goods imports and building permits, contracted on the QoQ basis in 3Q. Consumption growth should have also slowed, because of the adverse weather conditions, the surge in food price inflation, and the weakening of consumer confidence in 3Q.

Retail sales (real) fell on QoQ basis in 3Q. While growth momentum should have remained weak in 3Q, we underscore that growth has bottomed out in the short-term economic cycle and will rise more notably starting from 4Q onwards.

Export orders, exports and industrial production rebounded in September on the back of rising demand from China. If our view is correct that the Chinese economy is heading towards a cyclical recovery, Taiwanese exporters will benefit and the outlook for exports, production and investment will generally improve.

Domestic consumption growth should also pick up in the coming quarters, as food prices are expected to recede and inflation is expected to ease from 4Q onwards, which implies a restoration of consumers’ real purchasing power.

That said, consumption growth may not return to the trend rate of 2.5% anytime soon. The labor market, which lags the business cycle, is likely to remain lackluster for another two quarters until 2Q13.

Overall speaking, the main growth driver will be exports rather than domestic demand, given the economy’s structural dependence on external trade and the lack of fiscal/monetary policy stimulus to boost short-term growth in the domestic economy.