Taiwan’s trade data shows early signs of losing steam: TWD to weaken?

TAIPEI - Taiwan's exports contracted 8.9% y/y in March, partly due to a high base in March 2014, and were lower than market expectation of a 2.0% decline. Imports also underperformed, shrinking by 17.8% y/y, compared with consensus of -13.6%.

The trade surplus remained relatively large, though narrowing to US$4.07bn from USS4.56bn previously. For the first three months, exports and imports declined 4.2% y/y and 15.0% y/y, respectively.
The fall in exports was broad based, led by a sharp drop in minerals, chemicals, and plastic and rubber products, which are oil related. But even excluding these three categories, which dragged exports by about 5ppts in aggregate, exports of other products contracted. Notably, electronics exports fell marginally by 0.2%, the first contraction since February 2013.
ANZ Bank says the disappointing data in March suggest that Taiwan’s trade may have started to show dissipation in growth momentum. “While oil price fluctuations were the key driver behind the contractions, demand for other products also started to slow,” ANZ says.
Although quality of products has become the primary consideration to secure sales orders for many high value-added products (notably electronics components), the exchange rate of TWD against KRW is also a factor determining the export competitiveness of the whole economy in the medium term. “
As CPI inflation has fallen in the negative zone (March: -0.61% y/y; WPI -8.55% y/y), there is room for local currency to weaken without triggering much import inflation.”  www.live.anz.com (ATI).