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Taiwan warned over missing link between exports, orders

TAIPEI--The missing link between Taiwan's actual exports and export orders might continue to shadow the country's economic outlook in the short term, according to new research from Bank of America Merrill Lynch.

Government statistics show that Taiwan's exports in October declined 1.5 percent from a year ago, after falling 7 percent year-on-year in September.

The sub-par export reading, however, is in clear contrast to stronger export order figures, which rose by 3.2 percent year-on-year in October and increased again by 2 percent in September, led by promising growth in orders from the U.S. and Europe.

The export orders reflect the result of a monthly Taiwan export order survey of about 5,000 local firms. It is generally perceived as a leading indicator of potential exports in the next one to three months.

“We continue to believe that the near-term prospects for Taiwan exports may not be as bright as those of its neighbor exporters, while the gap between exports and export orders may continue to widen,” said Marcella Chow, a Hong Kong-based economist at Merrill Lynch.

“We expect (Taiwan) exports to grow at 3-5 percent next year, slightly better than our current 1.3 percent estimate for 2013, but to remain below (the global) trend,” she wrote in a research note.

Even though export orders tend to move in tandem with actual exports, the ratio of Taiwan's export value to order value dropped from 99 percent in 2000 to 68.3 percent in 2012, according to Merrill Lynch.

In the most recent figures, over 87.7 percent of Taiwan's October export orders for information and communications products were made for products produced overseas, while over 51.6 percent of electronics orders were manufactured outside of Taiwan, according to the brokerage's data.

Both of the October figures were above their five-year averages of 84 percent for overseas production ratio for information and communications products and 49 percent for electronic products.

“Recall that if orders are manufactured outside Taiwan, they are no longer counted as Taiwan exports,” Chow said.

“This does not bode well for the local employment market, as well as the overall economic condition, as exports are a key pillar of Taiwan's economy, accounting for close to 70 percent of gross domestic product,” she added.

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