Taiwan's Export Growth Probably Slowed, Inflation Accelerated

By James Peng and Chinmei Sung

July 7 (Bloomberg) -- Taiwan's June export growth probably slowed as demand from the U.S. and Europe faltered while inflation probably accelerated to its highest this year on fuel and food costs.

Overseas shipments rose 16.5 percent from last year, slowing from May's 20.5 percent, while June's consumer prices climbed 4.05 percent, quickening from May's 3.71 percent, according to the median estimate of economists surveyed by Bloomberg News. Both reports are scheduled for release at about 4 p.m. today in Taipei.

Slower exports add to the economic woes faced by central bank Governor Perng Fai-nan, who last month raised the key interest rate for the 16th consecutive quarter to quell inflation that the government expects to accelerate to a 13-year high this year. Slower global growth is reducing demand for electronics from Taiwan and Singapore and vehicles from Japan and South Korea.

``We expect slowing shipments of electronics and possibly another month of year-on-year sales contraction to the U.S. as well as weaker shipments to Europe,'' said Tony Phoo, an economist at Standard Chartered Bank in Taipei.

China and the U.S. are Taiwan's two biggest overseas markets. Overseas shipments are equivalent to about 50 percent of the island's gross domestic product. Sales of electronics to the world's fastest growing major economy have helped Taiwan weather the fallout from slowing U.S. economic growth, which has cut demand for Asian exports.

Taiwan's trade and investment with China, which regards the island as one of its provinces, are improving. The first direct flights took Chinese tourists to the island last week, ending a six-decade ban that deprived Taiwan of visitors from its closest neighbor.

First-Quarter Growth

China's economy expanded 10.6 percent in the first quarter, compared with 11.9 percent for the whole of last year, an easing its central bank described last week as ``moderate.''

``Slower export growth is widely expected because the U.S. still shows no significant sign of a recovery,'' said Johnson Hsu, an economist at Jih Sun Securities in Taipei. ``The market is expecting government spending in the second half to offset the shortfall in U.S.''

Imports rose 17.5 percent in June, accelerating from May's 17.6 percent increase, according to the economist survey.

Taiwan's economy grew in the first quarter by a faster-than- expected 6.06 percent, bolstered by overseas shipments and a pickup in consumer spending. The island joined Japan, Hong Kong and Malaysia in reporting economic growth that exceeded expectations.

Many Taiwanese electronics makers ship parts to China that are re-exported as finished products to other markets. More than 85 percent of Taiwan's computer products are made in China.

Export orders from China and Hong Kong combined advanced 15.3 percent in May from a year earlier. Orders are indicative of actual shipments over the next one to three months.

Consumer Prices

Central bank Governor Perng last month made a surprise increase in the amount of cash banks must put aside for the first time since 1989, sending the island's benchmark Taiex index to a five-month low.

``Consumer prices will probably stay high in the coming months because of fuel prices and that will prompt the central bank to keep raising rates in September,'' said Hsu of Jih Sun Securities.

The statistics bureau last month boosted its 2008 inflation forecast to 3.29 percent, which would be the fastest rate since 1995, up from a February projection of 1.98 percent.

Taiwan's central bank raised its benchmark discount rate on 10-day loans to banks by 12.5 basis points to 3.625 percent on June 26, the highest since May 2001. It also asked the banks to increase the amount of passbook deposits it sets aside by 1.25 percentage points to 11.025 percent.

The following table shows estimates for consumer prices from a year earlier:

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                                       CPI
Firm                                    YoY%
--------------------------------------------
Median                                  4.05%
Average                                 4.08%
High                                    4.51%
Low                                     3.81%
Number of Estimates                      12
Prior                                  3.71%
--------------------------------------------
Action Economics                       4.10%
CIMB-GK Research                       3.90%
ChinaTrust Commercial Bank             4.10%
DBS Group                              4.00%
HSBC                                   4.00%
ING Groep NV                           3.90%
Japan Center for Intl Finance          3.90%
Polaris Securities                     4.10%
SinoPac Holdings                       4.51%
Standard Chartered Bank                4.50%
Taiwan Securities Investment Adv       3.81%
Thomson IFR                            4.10%
--------------------------------------------


To contact the reporter on this story:
[bn:PRSN=1] James Peng [] in Taipei at
jpeng7@bloomberg.net;
[bn:PRSN=1] Chinmei Sung [] in Taipei at
csung4@bloomberg.net.