The trade and inflation data for Dec15 are due this week. Exports are expected to contract for the 11th month in a row, by -13% (YoY). CPI growth should stay marginally positive, at 0.3%. Global demand remains weak and the slowdown of the Chinese economy continues to weigh on Taiwan's exports. Meanwhile, seasonal demand in the tech sector may start to fade. Export orders for information and communication products already fell -7.8% in Nov15, reversing the positive growth in the previous two months. Orders for electronics components also dropped -3.1% in Nov15. This serves as a warning sign that the duration of the seasonal upturn in the tech sector would be short-lived this time, in light of the softness in global economic conditions.
International oil prices have continued to languish, which should keep inflation at low levels in Taiwan. This, however, may not help much on domestic demand. The persistence of economic slack has engendered some negative impacts on the labor market. Wage/job growth has started to slow and consumer confidence has deteriorated, which would offset the beneficial impact of lower oil prices and restrict consumer spending.
Sluggish economic performance has obliged Taiwan's central bank (CBC) to cut rates by 12.5bps at December's meeting, the second such move in 2015. This came against the backdrop of the Fed's first rate hike in nine years and growing concerns about capital outflows from emerging markets. The CBC's rate cut decision clearly showed that its policy priority was to support economic growth. Future policy moves will continue to depend on the outcomes of growth data.
"We currently expect the CBC to stay on hold through 2016, but will closely watch the upcoming data to assess the possibility of one more cut in 1Q", says DBS Group Research.
