With faltering external demand stifling growth prospects, Taiwan's central bank may finally give in to a rate cut at its quarterly meeting on Thursday, after having kept its policy interest rate at 1.875 percent since 2011.
"The recent string of poor data from Taiwan has raised concerns that external demand will remain sluggish. We now see a 60 percent chance of a 12.5 basis-point cut in the discount rate at the September meeting," Societe Generale economist Claire Huang wrote in a note last Friday.
The Central Bank of the Republic of China (CBC), which last met on June 25, has so far stayed put on rates even as nearly 30 central banks this year formed an unprecedented global easing wave aimed at bolstering growth and inflation. The CBC last tweaked its key rates in July 2011 with a 12.5 basis-point hike.
However, less-than-stellar exports orders data released on Monday may spur the central bank to step up support for the trade-reliant Asian economy, which looks set to grow at its slowest pace in six years, analysts predict. Last month, Taiwan's chief statistics agency slashed its 2015 growth forecast to a six-year low of 1.56 percent.
Taiwan's annual export orders slumped 8.3 percent last month, said the Ministry of Economic Affairs, nearly double of the 4.6 percent fall expected in a Reuters poll and marking the worst contraction in overall exports since August 2009. A slower-growing China - Taiwan's biggest export markets after the U.S. - is the prime culprit.
"The sharp slowdown in China's industrial and construction sectors (i.e. the secondary industry) has weakened Taiwan's exports, outweighing any improvement in trade with advanced economies." Hong Kong-based Huang said.
Growth in China's secondary industry slowed to 1.7 percent on-year in the first half of 2015, from 5.8 percent on-year in H1 2014, SocGen's note said. With the mainland accounting for 40-50 percent of purchases of Taiwan's industrial supplies such as chemicals and cement, the sharp slowdown in China's secondary industry has dragged down Taiwan's exports of late, Huang explained.
And a recovery isn't on the cards in the near term.
"We expect [the] secondary industry's nominal gross domestic product (GDP) to decelerate further to 1 percent in 2016... this would add further downward pressure on Taiwan's growth. Taiwan's central bank is not going to overlook this factor given its higher integration with mainland China," SocGen said.