Taiwan – CBC on hold

The CBC kept policy rates unchanged yesterday, seeming confident that inflation will fall below 2% next year. That might be right, but the bank's forecast that export growth will rebound to 10% YoY in Q423 isn't the most obvious environment for a fading of inflation to occur.

Taiwan – the relevance of this week's CBC meeting

With exports still weak, our CBC model suggests very little probability of a hike this week. But that model doesn't capture the rise in inflation, which until 2020 was so low that it didn't seem to matter. At the least, the CBC should sound more hawkish, and that has relevance for Korea and Japan.

Taiwan – sideways, with upside risks

Taiwan's exports have bottomed, but haven't improved much. Likely, they continue to go sideways for the next couple of months. Beyond that, there are now some upside risks, and so we'd been looking for the soft data to improve from here.

Taiwan – inflation holding up

Inflation data in August Taiwan fit with the broader regional picture of a re-acceleration in price pressures. The difference in Taiwan is that this doesn't follow a period where core inflation has decelerated.

Taiwan – still holding up

The desynchronisation between weak exports and resilient domestic activity is continuing. Despite a couple of warning signs, we'd expect that remains the theme for the next 3M. For an upside surprise, however, export demand needs to recover.

Taiwan – desynchronisation through Q3

Desynchronisation remains the theme, with services supporting inflation and wages even as exports remain in recession. This theme probably gets the economy through Q3, but into Q4 and the trajectory of activity and inflation will likely be determined once more by what is happening to exports.

Taiwan – still no turn in the PMI

Inventories are coming down in the PMI, which is a pre-condition for manufacturing to rebound. But there's no sign of a turn up yet, with export orders in July remaining weak. At the same time, the non-manufacturing PMI continues to hold up, showing desynchronisation of the cycle remains a theme.

Taiwan – Still desynchronised

The defining characteristic of Taiwan's current cycle remains the desynchronisation of activity between weak exports and strong consumption. That can probably persist through Q3 but not much longer, with the next step for the central bank thus being dependent on whether exports recover from Q4.

Taiwan – wages resilient for now

Taiwan's desynchronised cycle can also be seen in wage growth, which is accelerating in services but slowing in manufacturing. This likely can't persist, and for wages and inflation to hold up, manufacturing demand needs to rebound. That isn't happening yet, with exports in June still subdued.