Taiwan's trade data have remained sluggish. Exports shrank 14.6% (YoY) in Sept, a similar rate of contraction compared to -14.8% in Aug. Demand from China led the decline (-20.5%), followed by that from Japan (-15.1%) and Europe (-9.4%). Many have expected exports to pick up towards the year end, driven by a seasonal rise in electronics demand from the US. This has not been showed up in September's trade data. September export orders will be the next important indicator to watch. If orders also fail to rebound, the outlook for a 4Q recovery will be dampened.
Weak exports certainly have negative implications for the overall economy. The 3Q GDP growth may have turned negative on the YoY basis, worse than the current estimate of 0.6%. Full-year growth may fall to 1.0%, lower than the present forecast of 1.4%. In case of a lack of 4Q recovery, the GDP numbers for 2016 will also be affected and the central bank would need to further cut rates at December's policy meeting.
Beyond the short-term cyclical headwinds, there are also reasons to be concerned about the long-term prospects. Taiwan has lagged behind many of its regional counterparts in terms of trade liberalization. So far it has only signed FTAs (or quasi-FTAs) with three major economies - China, Singapore and New Zealand. By contrast, South Korea has established comprehensive FTA networks with the US, EU, China, ASEAN, India, Australia, New Zealand and etc. This has brought competition for Taiwanese exporters over the past several years.
The recent conclusion of the TPP deal poses more challenges for Taiwan. Trade competition from Japanese exporters will likely increase in the long term after the TPP takes effect, especially in the US market that Japan currently doesn't have a FTA with. Pressures are mounting for the Taiwanese authorities to focus on reviving the economy and accelerate the pace of trade liberalization, investment deregulation and other reforms. But any progress will only be made after the presidential elections next year.
