Taiwan's export orders to slip 1.6%

Blame it on global PMI's slowdown in May.

According to DBS, export orders(May) are due today and industrial production will be released next Monday. DBS expects export orders growth to stay in the negative territory (-1.6% YoY), following the synchronized slowdown in global PMIs during the same month.

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Industrial production is expected to decline a similar rate (-1.4% YoY), given that the manufacturing sector’s dependence on exports is high and the inventory ratio has risen in recent months.

The deterioration of exports callsfor more supportive policy measuresto boost the domestic economy. In thisregard, we don’t expect monetary policy easing.

Due to the persistence of ultra-low interest rates since the 2008 GFC, residential property prices have surged as much as 50% over the past four years.

With asset price inflation becoming a worry, the central bank hiked rates by 62.5bps in 2010-2011 and they refrained from cutting rates in 2012 – even when economic growth slowed sharply due to the worsening of European debt crisis.

The central bank will hold the next policy review on June 27 and we continue to expect no rates change at this meeting.

In our view,the authorities willfocus on reforms and liberalizationsto support sentiment and revive the economy. There are clearsigns that the progress of cross-strait trade and investment liberalization is reaccelerating.

The cross strait service trade agreement underthe ECFA will be signed soon at the 9th cross-strait talk (beginning today,June 20-22). The agreement may include important deregulation measures in the financial sector, such as relaxing rules for Taiwanese banks to expand branches in China, for Taiwanese securities companies to set up joint ventures in China, and for Chinese banksto invest in Taiwanese banks asshareholders. Othertopics may also include easier access to China’s medical services, e-commerce and transportservices sectors.