CPI was milder in March and exports were weaker than expected
Weaker inflation
CPI fell to 2.35% year-on-year in March from 2.43% in February while the PPI fell to 0.52% YoY in March from 3.97% YoY in February. The steep fall in PPI was mostly affected by lower energy prices. Export and import prices fell into negative territory, to -0.74% YoY in March from 1.99% in February, and -1.98% YoY from 3.37%, respectively.
This set of price data highlights the acute problem of weak demand from the US and Europe, which is hurting Taiwan's economy and has passed from exports to the domestic market through slower wage growth and therefore lower CPI inflation.
Very weak exports and imports
Exports contracted 19.1% YoY to USD$35.2 billion from a contraction of 17.1% YoY in February. Exports to Mainland China fell deeper, by -35.0% YoY in March from -30.2% YoY a month ago. The migration of some Taiwanese factories is likely one of the causes of this big fall. It is also partly due to the overall weakness in global demand for semiconductors. Exports of integrated circuits, Taiwan's main export item which contributes more than 41% of total exports, fell 13.4% YoY in March. Almost every export item experienced a yearly contraction in March except for exports of minerals, but minerals contribute only a bit more than 3% of Taiwan's overall exports.
Imports experienced similar issues, as Taiwan's imports are mostly used for its export-related manufacturing activities. Imports contracted 20.1% YoY in March after a contraction of 9.4% YoY in February. The big contraction came from imports from Saudi Arabia and South Korea, which shrank more than 30% YoY. Imports from Mainland China also saw a deeper contraction, falling 26.7% YoY in March from -20.8% YoY in February. Both electronics parts and minerals, which are used in the production of other electronic parts and goods fell the most, by 34.8% YoY and 31.7% YoY in the month.
The data points to a very weak export picture in March and in the coming months. We maintain our view that the recovery of Mainland China's economy cannot fill the gap left by a weaker economy in the US and a milder one in Europe.
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