Taiwan exports improvement barely significant

Flipside risks still prevail amid export increase of less than 2% of GDP.

According to Alliance Bernstein, the value of services exports has increased by less than 2% of GDP over the past two years. And from a structural growth perspective, we have seen no reversal in a five-year downtrend in the already low investment-to-GDP ratio. 

Here's more from Alliance Bernstein:

First, the improvement was supported by a relatively narrow base that may now be weakening. A trade-dependent economy, Taiwan’s export orders have exhibited close correlation with industrial production, with a slight leading tendency. Regional subcomponents reveal that in the past two quarters, export orders were supported almost single-handedly by US demand, which offset the drag from Europe (which indirectly reflected weakness in Chinese orders). 

Second, although hopes of a stabilization in Europe’s debt crisis grew in the first quarter, the optimism turned out to be short-lived. More recently, fears of an imminent “Grexit” faded after the somewhat market-friendly Greek election results, but attention has quickly turned to the fragile state of the Spanish banking system, highlighting the intractabledownside risks.

Third, we have seen an unintended re-accumulation of inventories by Taiwanese manufacturers as their transitory recovery in the first quarter fizzled out sooner than expected. This is reflected in a rebound in the “stocks of finished goods” subindex in the PMI (Purchasing Managers’ Index) survey. So de-stocking of inventories will likely delay a recovery in industrial output, even as external demand begins to recover.