Taiwan imports slowed to 12.5%yoy in June

Exports rose by 10.8% yoy in June. While this is a slight improvement over May's 9.5% yoy, it is much lower than the 20% yoy recorded in Q1. Imports slowed to 12.5% yoy in June, from 19.3% in May-most likely the reason for softer exports, as we will see. The result was a trade balance of USD 1.4 billion, compared with a monthly average of USD 1.7 in the first 5 months of 2011.

Exports by destination show that the slowdown is due to China rather than the US. Exports to the US grew by an impressive 66% qoq, saar in the second quarter, compared with a contraction of 5.7% in the case of China. A similar pattern is observable for Korea, where exports to the US were up 45% qoq, saar in Q2, compared with 0.7% in the case of China.

However, I caution against reading this as evidence of a hard landing in China, given that total Chinese imports are holding up well - up 26% qoq, saar in May. More likely it is a reflection of supply disruptions in the regional production chain following the earthquake in Japan. This is borne out by import data, which shows that imports from Japan collapsed in March and haven't recovered since.

In sum, the slowdown in exports seems to be due to a temporary factor, namely the Japanese earthquake. Equally important, exports to the US are soaring, dispelling concerns that the US recovery is stalling. This meshes with my broader call that global growth will be strong in the second half of the year and bodes well for Taiwanese exports and growth going forward.

The trade data does not change my call on the TWD, that is, a mild appreciation of 1% over the remainder of the year to 28.5 per USD. This is because inflation is low, exporters are powerful, and sterilization costs are negligible.