Taiwan’s industrial activity recovery likely to be gradual and uneven

Taiwanese industrial output, in April, declined 4.1% on a year-on-year basis, whereas it dropped 0.8% on a sequential basis. It had growth 1.3% m/m in March. The soft data of industrial production is in line with the view that in spite of promising signs of stability in growth, the path of rebound is expected to be slow and uneven, said Barclays in a research report.

Taiwan’s manufacturing PMI dropped back into the contraction zone of 49.7 in April. It fell further to 48.5 in May, highlighting the problem of the constant weakness in external demand. With the soft momentum of recovery in subsequent quarters, the Taiwanese government downwardly revised its 2016 growth forecast to 1.06% from an earlier projection of 1.47%.

“With the negative output gap remaining wide and the core inflation outlook still mild, we expect the central bank to continue its easing cycle and forecast a 12.5bp rate cut at its June policy meeting”, added Barclays.