Drop in exports looms in Taiwan

DBS Group Research explains why.

Here's what DBS Group Research noted:

January trade and inflation are due this week. The Chinese New Year fell in January last year but in February this year. As such, export growth in Jan13 will likely show a strong double digit rate of 20% YoY. CPI inflation is expected to slow to 1.3% YoY in Jan13.

A big drop in exports and a jump in inflation will follow in February. It is best to combine data in the first two months of the year to look at the underlying trend.

Overall, we think Taiwan is entering into the phase of early expansion in the economic cycle, thanks to recovery in global demand especially demand from China.

As the output gap will remain negative in the next 1-2 quarters, inflation will remain benign and the central bank will be allowed to keep monetary policy accommodative.