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Taiwan’s trade surplus slightly below expectations for second straight month
Slower export growth leads to slightly lower trade balance than expected
Taiwan’s exports slowed to 3.1% year-on-year in July, lower than Exports rose 23.5% year-over-year in June, a strong performance. This pullback was expected, but the cooling in export growth was more than our expectations for high-single-digit growth. Exports barely rose 0.1% for the month.
Meanwhile, despite a 0.3% month-over-month decline, imports in July were still up 16.2% year-over-year. At first glance, this might make it seem like a strong recovery in demand; however, this is largely a base effect story that should continue in the coming months. Imports fell -19% year-over-year in the third quarter of 2023, meaning it won’t take much to see strong growth this year.
The relative lack of exports resulted in a trade surplus of $4.83 billion, slightly below our forecast of $5.5 billion. This month’s data will not materially change the growth outlook for 2024 at this point, but there are some areas worth highlighting in the data.
First, most export categories were weak in July. The main export category of machinery and electrical equipment (up 6.6% year-on-year) appeared to show some strength, but this was almost entirely driven by a 42.4% year-on-year increase in the information, communications, and audio-visual products category, which was related to continued strong growth in computer exports (up 85.5% year-on-year). Other machinery and electrical equipment subcategories all contracted, and semiconductor exports fell back to negative growth of -12.8% year-on-year in July after a solid 7.6% year-on-year increase in June. Exports of chemicals (-6.7%), plastics and rubber products (-4.5%), and textiles (-8.5%) also contracted, and these three product categories together account for about 10% of Taiwan’s exports.
Export destinations also continue to show significant differences. Export growth is almost entirely dependent on growth to North America, which grew 68.9% year-on-year in July. However, we saw year-on-year declines in exports to Asia (-8.3%) and Europe (-33.7%), largely due to a 13.5% year-on-year decline in exports to China and Hong Kong and a 29.1% year-on-year decline in exports to Germany. Taiwan’s export growth remains worryingly dependent on demand from the United States.
In short, exports appear to be driven by computer shipments to the US, while other sectors are showing some signs of vulnerability. If the US ends up falling into a recession, Taiwan’s exports will be more affected than normal, and judging by developments over the past week, this seems to be an increasingly prominent risk.
Taiwan’s export growth still heavily dependent on US demand
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