What you need to know about Taiwan’s latest export figures

Analyst says Taiwan's export growth is receiving a much needed boost.

Donna Kwok, Greater China Economist at HSBC, reported:

Facts
Taiwan's February export orders jumped 17.6% y-o-y, mirroring the upside surprises delivered by February's already released trade and PMI readings (Bbg: 13.0%; HSBC: 10.0%).

On a seasonally adjusted basis (sa), export orders rose 24.2% on the month, compared to January's decline of 7.2%. On a %3m/3m basis, sequential growth gained pace too, rising 4.6% compared to -0.1% previously.

By destination, export orders from all of Taiwan's major trading partners strengthened. Export orders from the US, Mainland China & Hong Kong, Japan, Europe and Asia accelerated on a sequential 3m/3m (sa) basis to rise 4.5% (Jan: 4.2%), 0.1% (Jan: -4.7%), 0.9% (Jan: -10.6%), 7.8% (Jan: -3.1%) and 1.0% (Jan: -5.5%), respectively.

By category, exports of electronic products, electrical machinery and information and communications products (which account for 27-30% of total exports) all picked up pace. On a 3m/3m, sa basis, they rose by 5.0% (Jan: 3.2%), -0.9% (Jan: -3.6%) and 0.1% (Jan: -6.1%) respectively. On a m-o-m basis, the improvement was even more dramatic (partly because of the passing CNY effect). Exports of electronic products leapt 11.6% m-o-m (sa) (Jan: -4.8%), of electrical machinery they leapt 14.9% (Jan: -7.0%) and of information and communication products they jumped 13.1% (Jan: -3.7%).

Implications
External demand has not deteriorated further since the last GDP release confirmed Taiwan's descent into recession in 4Q11. Growth of export orders, IP, trade, and manufacturing activity are all in fact picking up sequentially, albeit modestly.

Not only are US indicators holding up stronger than a quarter earlier, but market sentiment about the eurozone has also improved of late, due to the recent positive turn in German data and European politicians' successful attempt to alleviate near-term credit market distress. Smaller Asian exporters including Taiwan, who typically act as bellwethers for the rest of exporting Asia, are as a result seeing the first signs of stabilization in their latest economic down cycle.

Simply put, today's encouraging result and Taiwan's other recent data upside surprises can be traced back to three things: an improvement in price and final demand elasticity in Western markets over the Christmas period; the exhaustion of extremely lean inventory levels held in the latter half of 2011; and a surge in new build orders for new product launches, which typically tend to cluster in the first half of each year.

That said, it's still oo early to signal the all-clear. Taiwan's exports decline is entering a period of stabilization, but not rebounding just yet. After all, we only have two months of encouraging data points to hand, while rising global energy prices are already starting to bite into US consumer confidence levels (e.g. March's US Michigan Consumer Confidence Survey deteriorated unexpectedly last Friday to 74.3 from 75.3 previously).

At he same time however, the inflationary outlook is looking just as, if not more uncertain than before, with a simple average of the international oil price benchmarks that the CBC monitors already past its 2008 peak level.

On balance, from the CBC's view, growth is holding up, and geopolitical risks associated with global energy supply disruptions escalating. With liquidity conditions still accommodative, property prices under relative control, and alternative fiscal levers for supporting growth at hand, we thus expect the central bank to keep the policy rate on hold at 1.875% this Thursday - where it will stay until 4Q12 when a rate normalization cycle should resume.

Bottom line: February's strong sequential print for exports orders offers more room for policy makers to justify their likely "pause" decision this Thursday. With monetary conditions still relatively loose and geopolitical risks in the Middle East stoking global energy price inflationary, expect the CBC to keep the policy rate at 1.875% again this Thursday.