Taiwan's real export growth dropped sharply to -1.3% yoy in Q2 from 5.9% yoy in Q1 while real imports slowed slightly from 2.5% yoy to 1.9% yoy. As a result, net exports shaved 4.9pp off GDP growth in Q2, the main culprit behind the weak headline, notes Societe Generale. The swings in net exports vastly mask the underlying trend.

Domestic demand strengthened in Q2. Consumer spending growth rose further to 2.8% yoy from 2.5% yoy, thanks to the tight labour market. Unemployment rate remained low at 3.75% in Q2, largely unchanged from 3.76% in Q1. That said, it was up slightly in June while the participation rate declined fractionally, probably due to weak external demand that depressed growth momentum in the manufacturing sector.

Gross capital formation increased strongly by 5.4% yoy in Q2 after 0.4% yoy in the previous quarter. Stronger investment growth is likely to have been the main driver, as indicated by the bounce in capital goods imports, says Societe Generale. Meanwhile, the lower manufacturing inventory in May suggested destocking seems to have continued in Q2.



Government consumption expenditures expanded mildly by 0.2% yoy in Q2 after a drop of 2.2% yoy in Q1. Government revenue growth accelerated to 11.6% yoy after 5.8% yoy in Q1, supporting spending growth. Overall, the underlying trend of economic growth remained resilient.