Soft external demand weighs on Taiwan trade

Taiwan's exports and imports declined at a double-digit pace for the second consecutive month in July. Export order growth recovered slightly to -5% yoy in July from -5.8% yoy in June. The breakdown shows a rebound in orders for electronic products. 

However, given the high overseas production ratios for electronics, rising orders may not boost exports much in August. Moreover, China's industrial sector has decelerated at a rather fast pace, and this explains more than half of the weakness in Taiwan's exports this year (see chart in margin).

Poor manufacturing PMI reports from China do not point to a meaningful rebound in its manufacturing sector in August, and consequently Taiwan's exports are likely to suffer. In addition to soft external demand, the island was hit by Typhoon Soudelor, estimated to be the most destructive tropical cyclone thus far in 2015, while the weather was calm in August 2014.

"Hence, Taiwan's foreign trade growth is expected to have decelerated further in August", states Societe Generale.