Hopes escalate for a 20% surge in Taiwan export growth

Export and manufacturing sectors may be recovering.

According to DBS, January's trade data will likely show a big jump in export growth to 20% YoY, in part due to the base effects caused by Chinese New Year.

Combining January and February, exports are expected to grow at a high single digit rate of about 6%, still a significant improvement compared to 2.5% in 4Q12.

The upticks in January PMI reinforced DBS view that the export and manufacturing sectors are entering the recovery phase and the pace of recovery is accelerating.

Here's more from DBS:

The Markit PMI rose for the second consecutive month to 51.5 in Jan (+0.9ppt). The official PMI (a new index compiled by Chung-Hua Institution for Economic
Research) reported an even higher level of 57.7 in Jan (+6.4ppt).

While growth is picking up, price pressures have continued to ease thanks to the normalization of supply-side inflation and the weakness in demand-pull inflation.

Headline CPI slowed to 1.2% YoY in Jan13 from 1.6% in Dec12, the lowest rate over ten months ever since Apr12 (when energy prices surged as a result of the
government's subsidies cuts).

Core CPI decelerated even more pronouncedly to 0.3% in Jan from 1.1% in the previous month. The slowdown in YoY inflation was not fully due to the high base. On the MoM basis (seasonally adjusted), CPI growth fell to only 0.04% in Jan.

We expect the macro data to continue improving throughout this year - higher growth and lower inflation, and the improvements in YoY numbers will become more notable in 2H13.

On the risk front, the growth outlook largely hinges on exports and development in global economic climate. The risks to inflation will primarily come from oil and food prices. Note that the CPI index has been rebased starting from Jan13 (base year: 2011 versus 2006 previously).

There were also adjustments in the CPI weights, with the biggest changes made in the items of food (-0.9ppt, including vegetable & fruit prices that are vulnerable to weather) and transport & communication (+1.3ppt). Accordingly, the sensitivity of CPI inflation to food prices has been reduced slightly, while the sensitivity to oil prices has increased.