A drop in Taiwan's export orders growth to a five-year low in July shows that Asia's exports engine is stuttering and heralds a bumpy ride in months ahead for the region's economies. Taiwan's orders, a barometer for global electronics demand and the island's exports trend in the next one or two months, rose 5.5 percent last month from a year earlier, its worst performance since May 2003.
Data published on Monday showed a slump in bookings from China, Taiwan's biggest market, was mainly responsible for the poor performance. Analysts said that while the drop could in part reflect a slowdown in China's manufacturing sector in the run-up to the Beijing Olympics it was an ominous sign for other economies in the region that rely on foreign markets for much of their growth.
"Taiwan's export orders were pretty weak and it's a warning sign that other economies in the region will suffer from a slowdown in exports in the next month or so," said Tony Phoo, an economist at Standard Chartered. Taiwan is the only major Asian economy that announces orders figures and analysts usually scour around for other data, such the US ISM (Institute for Supply Management) index, for hints on the strength of Asia's exports.
Analysts said Asia's exports would continue to weaken in the second half of the year before picking up slightly next year, though some analysts argue several countries would probably do better than Taiwan, whose exports largely depend on the tech cycle.
"The flat panel sector has been experiencing a down cycle and prices have been falling and this is a unique characteristic of Taiwan's exports," said Ma Tieying, an economist with DBS. "Taiwan's exports are not as diversified as South Korea, which also rely on shipbuilding and auto sectors." South Korea's exports jumped 36 percent in July from a year earlier, the strongest rise in four years.
WEAK 2ND HALF AHEAD: In contrast, Hong Kong saw its exports drop in June for the first time in more than two years and Singapore reported annual declines in non-oil shipments in May, June and July. Overall, Asia's exports have been clearly slowing, with volumes growing at an annual rate of about 9 percent recently, hitting single digits for the first time in more than six years, Merrill Lynch said in a report earlier this month. In terms of volume, total exports growth could drop to 2-4 percent by early 2009, Merrill Lynch said.
Taiwan, which reports its exports and orders data in dollar terms, had long relied on robust demand from emerging markets, such China and south-east Asia, to offset faltering US sales.
But these regions are starting to show signs of strain, which were reflected in the July orders data. "The (orders) numbers pointed to an unwelcoming nod to a nasty global deceleration," Daniel Soh, an economist with Forecast Ltd, said. In July, Taiwan's orders from China only grew by 1.7 percent, the slowest pace since February 2005.