Taiwan's economy grew 1% YoY in 3Q

It was mainly driven by exports and gross capital formation.

DBS Group Research noted:

The economy grew 3.5% QoQ saar or 1.0% YoY in 3Q, slightly better than in the preceding quarter (2.2% QoQ saar, -0.2% YoY). The improvement in 3Q was mainly driven by exports and gross capital formation (including inventory). Export orders, exports and industrial production have rebounded in September, thanks to rising demand from China.

October’s China PMI crept upward to 50 and Taiwan PMI also rose by 2.2ppt to 47.8, supporting our view of a sustained improvement in Taiwan’s growth momentum in 4Q. As the 3Q GDP is slightly lower than our initial estimate of 1.2% projected one quarter ago, we revised the full year GDP estimate to 1.1% from 1.3%. In the view of a moderate recovery starting from 4Q12, however, we maintain the 2013 GDP forecast unchanged at 4.2%.

The important release on the economic calendar next week will be CPI inflation. Headline inflation is expected to slow to 2% YoY in October from 3.0% in the previous month. Food prices have peaked in August and should have fallen for the second consecutive month in October, thanks to the normalization of weather conditions.

Based on the available statistics from the Council of Agriculture, about 55% of the vegetable and fruit items saw price declines in the first 20 days of October, and near 80% of these items recorded faster price declines than in the preceding month. As the impact of the supply-side disruptions on inflation has started to fade, we maintain the forecast that CPI inflation will ease to 1.3% in 2013.

The combination of higher growth and lower inflation implies that the central bank will keep a neutral stance on monetary policy. No rate change is expected at the next CBC policy review in December.