Despite Export Drop, Growth Remains Steady
The Taiwan economy saw declines in March in everything from housing sales to inflation to unemployment and exports. One thing that didn’t decline, however, was the economic growth forecast. The Chung-Hua Institution for Economic Research (CIER) raised its forecast for GDP growth in 2015 from 3.5% to 3.56%, based on rising private consumption and investment. CIER sees private consumption rising this year by 3.02% (up from its earlier forecast of 2.78%) and private investment by 4.37% (compared to the earlier 3.27%) because of low fuel costs and low inflation. The price of oil has declined 26.5% from last year, leading to the third straight month of year-on-year declines in the Consumer Price Index. The CPI fell by 0.8% in March. CIER emphasized that Taiwan doesn’t face a deflationary situation as consumer markets are robust. Removing the price of fuel from the calculation reveals a 0.96% rise in consumer prices, with food prices alone up more than 3%.
Exports in March plummeted by 8.9% from a year earlier to amount to US$25.27 billion, for a total in the first quarter of US$70.24 billion, a 4.2% decline. That drop was mitigated by an even steeper decline in imports, which fell by a precipitous 17.8% in March to US$21.2 billion. At US$56.82 billion, imports were down 15% for the quarter, giving Taiwan a US$13 billion trade surplus. The decline in exports is attributed to continuing lackluster growth in China, as well as a pause in the expansion of the U.S. economy. While Taiwan’s exports to the United States were flat, they fell by 8.8% to China, 11.6% to Japan, and 13.6% to Europe. Global trade has also been impacted by the ongoing conflict in Ukraine and a weakening euro. Since oil prices remain low, however, analysts expect demand from both the United States and Europe to recover in the second quarter.
With exports down across the board, even Taiwan’s IT sector has seen declines. The value of shipments overseas in the Machinery and Electrical Equipment category of Taiwan’s trade ledger, at US$12.69 billion, was down by 1.7% for the month, although the sector rose by 4% for the quarter to reach US$35.52 billion.
Even Taiwan’s vital semiconductor industry may be looking at a lackluster year, with analytics firm Gartner Inc. cutting its 2015 growth forecast for semiconductor shipments from 5.4% to 4% due to growing inventory and changes in exchange rates. Gartner sees depreciating currency values relative to the US dollar, as well as excess inventories in the semiconductor and electronic supply chains, as impacting revenues. Nevertheless, the Taiwan Semiconductor Manufacturing Co. (TSMC) in March reported a 44.7% increase in sales from the same month last year to NT$72.27 billion (US$2.31 billion). TSMC said it will be reducing its capital expenditure budget this year by US$1 billion, to US$11 billion, as a result of lower demand for smartphone chips and increases in capital efficiency.
The official purchasing managers index (PMI) recovered in March, jumping to 59.1 from 47.8 in February, reflecting rising export orders and industrial production. Export orders rose by an unremarkable 1.3% year-on-year to US$38.43 billion in March, with analysts pointing to the sluggish demand for smartphones.
Government finances are improving due to increased taxes on earnings by financial firms, which the Ministry of Finance says it expects will help boost tax revenues this year by 3.8% over 2014. As a result, Taiwan’s budget deficit this year is expected to come to NT$158 billion (US$5.1 billion), a steep drop from last year’s NT$209 billion.