Taiwan's export growth predicted to slip 0.8%

PMI has also been disappointing.

According to DBS, the outlook for export demand remains challenging. Manufacturing PMI slipped below 50 in May in both China and the US – Taiwan’s two largest export markets.

The US fiscal spending cuts have just begun. On the other hand, China’s new administration is in no hurry to boost the country’s growth momentum.

Here's more from DBS:

Taiwan’s external trade data for May (due today) will likely show export growth has stayed slightly negative at -0.8% YoY. PMI in Taiwan has also fallen below 50 last month and industrial production has deteriorated.

The 2Q GDP growth will be worse than expected, due to weak export demand and inventory destocking.

That said, we still expect domestic demand to pick up later this year and provide some support to headline growth. Thanks to lower commodity prices in the international markets, CPI inflation has eased rapidly to 0.7% YoY in May from 1.0% in April and 1.8% in 1Q.

The slowdown of energy inflation will improve households’ real incomes and real purchasing power. Although an electricity price hike of 10% is slated in October, we think the government has sufficient leeway to postpone the price hike.

Given that the public debt ratio remains lower than the legal limit of 40% and most of the debt is financed domestically, there is no urgency to push for aggressive fiscal consolidation in the short term.

In addition, the government recently has proposed to revise the capital gains tax bill, exempting individual stock market investors from paying the tax. If approved, this should also help consumer sentiment in the near term.