A Slight Uptick from August

The World Trade Organization announced in late September that with world trade growing in 2016 at an anemic 1.7%, far below the figure of 2.8% forecasted in April, this year “would mark the slowest pace of trade and output growth since the financial crisis of 2009.” With global GDP growth for 2016 forecast to rise by 2.2%, it likewise marks the first time in 15 years that growth in trade has failed to keep pace with GDP growth.

That is an ominous message for Taiwan, one of the world’s most trade-dependent economies. Up until July, exports had declined for a record 17 consecutive months, and Taiwan saw three back-to-back quarters of economic contraction.

Surprisingly, though, Taiwan managed to turn the downward trend in exports and growth around in the second quarter. The economy grew by 0.69% in Q2 on strengthening exports and manufacturing activity, assisted by improved economic performance in Taiwan’s largest trading partner, China, the destination (together with Hong Kong) for 40.4% of Taiwan’s exports.  China’s growth rate in Q2 was a better-than-expected 6.7%.

Taiwan’s total trade increased by 0.2% year-on-year in the month of August, but for the January-August period the trade total of US$328.57 billion represented a 7.3% decline from the previous year. Exports were up 1% in August in annual comparisons, but year-to-date the US$180 billion total came in 6.6% below the 2015 mark. Imports fell in August by 0.8% and year to date by 8.1%, giving Taiwan an 11.4% trade-balance increase in August and a 1.4% rise year-to-date compared with the same period a year before.

The economic uptick is attributed primarily to stronger global trade in electronics and equipment, which comprise 55% of Taiwan’s exports. Exports of machinery and electronics improved by 5.4% in August to reach US$13.6 billion (although the first-eight-month figure of US$97.7 billion was down 2.8%). The sub-category “parts of an electronic product,” which alone accounts for some 30% of Taiwan’s exports, surged by 14.8% in August (and was up 1.7% for the year to date). The August rebound was seen as reflecting renewed overseas demand for electronics components, particularly for the iPhone 7.

A recovery in oil prices is also helping to mitigate declines in Taiwan’s plastics, chemicals, and mineral/petroleum product exports, which collectively account for 16.4% of total exports. Mineral products fell by 10.1%, a better result than the year-to-date decline of 15.1%, while chemicals contracted 4.3%, compared to a 9.3% decline for the year, and plastics dropped by only 2.9%, a marked improvement over the 9.5% decline for the year.

Taiwan’s Purchasing Manager’s Index (PMI), an indicator of manufacturing sentiment, remained healthy for the sixth straight month, rising 0.8% to 55 in August (a number over 50 indicates optimism). The National Development Council reports that the index for the non-manufacturing sector (NMI) likewise remained in positive territory at 52.5, reflecting a slight decline of 1.9 index points from July.

Export orders, a leading indicator for the manufacturing sector, rose 8.3% in August in annual comparisons, amounting to US$37.93 billion, according to the Ministry of Economic Affairs. Once more, ICT and electronics topped the list at US$10.52 billion and US$10.44 billion, respectively. Year-to-date export orders came in at US$274.03 billion, a 5% drop.

In year-to-date export orders, the United States led the pack with some 28% of the total, a rise of 2.3%, followed by China at 24.6% (up 4.7%), Europe with 18.1% (a 5.6% increase), Japan at 5.8% (a 21.5% rise), and ASEAN, with 12.4% of the total (up slightly at 1.3%).

U.S. second-quarter growth came in at an anemic 1.1%, according to the U.S. Department of Commerce, while Q2 gains in Europe and Japan were even lower, at 0.3% and 0.7% respectively, as reported by data analytics organizations Eurostat and Markit.

The NDC reports that the semiconductor industry continues to lead in private fixed investment, but declining housing prices are causing a dampening effect, resulting in a forecast of 1.15% economic growth for 2016. As the government seeks to provide some economic stimulus, government fixed investment and public-enterprise fixed investment look set to rise in 2016 by 2.80% and 0.52%, respectively.

Unemployment remains high by historical standards, rising to 4.08% in August from 4.02% in July, according to the Directorate General of Budget, Accounting and Statistics (DGBAS). The Taiwan Institute of Economic Research says that this lagging indicator reflects the downturn in the economy that began in Q2 of 2015.

The Consumer Price Index (CPI) dropped to 0.57% in August from July’s 1.23%, according to the DGBAS. Consumer confidence declined slightly – to 78.66 in September from 79.56 in August – on the index maintained by the Research Center for Taiwan Economic Development (RCTED) at National Central University.