Taiwan's Industrial production (October) is expected to show modest improvement

Taiwan's industrial production (October) is due today, the first piece of output data for 4Q. A smaller decline of -4.9% (YoY) has been penciled into the forecast, compared to -5.3% in the previous month. This implies a positive growth of 1% on the MoM basis (seasonally adjusted). A major driver should come from the electronics sector, where manufacturers are expected to ramp up production due to the arrival of festive demand and the release of new mobile products. 

A sequential rise in industrial production is key to support the baseline scenario that the economy will return to a moderate growth path from 4Q onwards. But uncertainties remain high. The seasonal upturn in the electronics sector normally lasts for just 1-2 quarters, according to historical experiences. Meanwhile, demand from China has not yet showed clear signs of stabilization. And the risk of emerging market slowdown remains significant as the US Fed is about to tighten monetary policy. 

It was somewhat disappointing that export orders fell again in Oct15 (-5.3% YoY) after a temporary improvement in Sep15 (-4.5%). A similar pattern was observed in the volumes of export orders, suggesting that the slowdown was genuine rather than being distorted by the price factors. Given that the October reading remains better than the 3Q average (-5.9%), the view remains intact that exports and GDP growth will bottom out in 4Q. The pace of recovery, however, could be weaker than expected. And sustainability remains a big question mark.