Taiwan exports likely to improve as China's growth stabilizes

Export orders in Taiwan are expected to have improved during the month of June tracking stabilization in China’s gross domestic product and the relatively fading effects of Britain’s exit from the European Union on June 23. Also, the slight improvement in global risk sentiment is also expected to have supported the country’s exports.

The headline number is expected to improve to -5.1 percent y/y in June from -5.8 percent in May, DBS reported. Also, exports of electronic items, a key pillar of Taiwan, is also expected to increase during the second half of 2016 following the onset of seasonal demand and the slight easing of the country’s short-term external headwinds.

However, external headwinds are likely to still persist. The maturation of manufacturing supply chains on the mainland reduces the need for importing intermediate goods from Taiwan. This means that trade demand from China will remain subnormal for a long time. Moreover, trade competitions with other Asian countries are on the rise as Taiwan falls behind most of its regional peers in expanding the FTA networks, the report said.

"We expect Taiwan’s central bank (CBC) to continue to cut rates in 3Q to support growth and prevent deflation. We also see a rising chance that the government will pursue an expansionary fiscal policy when compiling the FY2017 budget in August," DBS commented in its report.

Meanwhile, the country is in need of structural reforms to pull the economy back on track and to upgrade industries and restore trade competitiveness.