Unemployment down, consumer confidence up. Low oil prices are spurring growth, but concerns for Taiwan economy arise due to China slowdown.
Taiwan moved up three places in the annual world Economic Freedom Index [see the Editorial in this issue] by the Washington, D.C.-based Heritage Foundation, to be ranked the 14th freest economy in the world. Bolstered by high scores in business and trade freedoms, the rank marks the seventh year in a row that Taiwan has moved up the list. The new ranking follows other welcome news: Taiwan’s unemployment dropped once more in December, to 3.79%, a seven-year low. Consumer confidence, as measured by National Central University, rose 1.87 points in January to 88.23, the highest score ever achieved. The gains in the overall index were attributed mainly to improved consumer sentiment regarding the stock market, prospects for employment, and the impact of consumer prices on household finances. Taiwan’s Consumer Price Index remained low in December at 0.61%, according to the Directorate General of Budget, Accounting and Statistics (DGBAS).
Exports also saw gains in December and for the whole of 2014, rising 2.4% month-on-month and 5% for the year, at US$25.65 billion and US$313.83 billion respectively. Meanwhile, export orders, a leading indicator, totaled US$470 billion for 2014, a 7% rise over 2013’s US$442.93 billion. Economic growth came in at a better-than-expected 3.78% for the third quarter of 2014, and economists are optimistic that final calculations will show that the economy reached, if not exceeded, its forecasted 3.41% GDP growth rate for 2014.
One factor spurring growth has been low oil prices, which help fuel domestic consumption by freeing up disposable income for other purchases. Externally, a major contributor has been strong demand for electronics around the world, particularly from the United States, where growth has exceeded expectations. Third quarter growth came to 5%, according to the U.S. Department of Commerce’s Bureau of Economic Analysis. The United States took 12% of Taiwan’s exports for 2014. According to Standard Chartered Bank, a rise of 1% in GDP growth in the United States translates into 0.7% growth in Taiwan’s economy.
Taiwan’s tech sector accounts for some 32% of its total exports, and surging sales – especially for the new iPhone 6 – have bolstered local manufacturers. Exports of electrical/electronic products rose 13.5% for the year, to US$99.99 billion. The electrical/electronics and machinery sectors, which together make up some 50% of all exports, grew at a combined rate of 7.7% last year to reach US$154.89 billion.
DGBAS is forecasting GDP growth for 2015 at 3.51%, but economists in the private sector see Taiwan performing even better. Tony Phoo of Standard Chartered Taiwan is projecting solid 4.3% growth on the strength of U.S. demand and falling fuel prices. Taiwan Asia Strategy Consulting also raised its 2015 forecast to 3.8%.
However, not all the recent news has been good news. Slowing growth in China is a concern, as around 40% of Taiwan’s exports go to China and Hong Kong (26% directly to China). Taiwan Ratings, the local affiliate of Standard and Poor’s, estimates that a 1% fall in China’s growth rate translates into a 2.3% decline in Taiwan’s. China’s 2014 growth was widely reported as 7.3% — the lowest since 1990 – and is forecast to come in at 7% next year. Weakness in Japan and the EU is also expected to continue.