Taiwan’s Economic Outlook – February 2017

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Exports in late recovery

Taiwanese exports surged in December by 14% year-on-year, to US$25.67 billion, but it wasn’t quite enough to lift them out of the hole dug during the first half of 2016. The year ended with a 1.7% decline in exports compared to 2015, according to data from the Bureau of Foreign Trade (BOFT). The decline in overseas sales during the first half of 2016 caused the trade-dependent economy to contract in the first and second quarters. Exports – and with it, economic growth – slowly began recovering in the second half, with the recovery gaining momentum through Q4, culminating in December’s double-digit export growth.

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The year ended with US$280.4 billion in exports, 1.7% less than in 2015, and US$230.9 billion in imports, a drop of 2.6%. China and Hong Kong accounted for 40% of the exports (China alone for 26.4%), ASEAN for 18.3%, the United States for 12%, and Europe for 9.4%. China was also the largest source of imports with 19.1%, followed by Japan (17.6%), Europe (12.6%), the United States (12.4%), and ASEAN (11.8%).

Much of the December gains were seen in cross-Strait trade. Exports to China (with Hong Kong) rose 21.4% in annual comparisons, comprising 42.7% of total exports for the month. Despite this leap, exports to China fell slightly for the year, by 0.7%. Exports to Taiwan’s second-largest trade partner, the United States, rose by a more modest 2% for December and ended the year with a 2.9% decline. Sales to Japan rose by a healthy 10.2% for the month, but likewise declined slightly for the year, by 0.2%.

Regionally, the story looked similar. Exports to ASEAN leapt 22.9% in December but ended the year down 0.6%. Trade with the European Union bucked the trend, declining by 0.4% in December but rising a modest 2% for the year.

Economic-Indicators

The improvement in exports in the second half enabled Taiwan to reverse its economic contraction and end the year with a fairly healthy 1.35% GDP growth, according to the Directorate-General of Budget, Accounting, and Statistics (DGBAS). Economists attribute the late rally in exports and growth to stronger demand, particularly from the United States and China, and recovery in oil prices, which benefits Taiwan’s large oil-related industries, including the Mineral Products (which includes refined oil products), Chemicals, and Plastics sectors. The rise in oil prices has put a floor under commodities in general. CLSA economist Ines Lam says that this factor spurred the economies in commodities-dependent nations such as ASEAN member states, enabling them to buy more from Taiwan.

Growth & a Trump effect

Gordon Sun, director of the Macroeconomics Forecasting Center at the Taiwan Institute of Economic Research (TIER)’s points to the healthier Electronics and Petroleum sectors as boosting the overall economy. Electronics, which accounted for 33.4% of Taiwan’s exports in December, rocketed 30.7% for the month to finish out the year up 8.1%.  He sees that trend as continuing into the first half of 2017 to bring first half growth above 2%, albeit from a low base of comparison against last year’s sluggish first two quarters. But he cautions that “the low base effect will end by the second half of 2017,” slowing growth.

Ines Lam of CLSA sees an even more pressing obstacle to Taiwan’s growth momentum: incoming U.S. President Trump’s anti-China rhetoric, which could impact Taiwan’s exports. Trump has made the U.S. trade deficit with China a key plank of his campaign platform, and analysts fear he will slap tariffs on Chinese exports to the U.S. “If he really does that, Taiwan will be hurt because Taiwan supplies intermediate products to China,” she notes. “It would be a disruption to the whole supply chain between Taiwan, China and the U.S.”

Trump’s plans for major infrastructure development, however, might provide a boost to Taiwan’s exports of electronics and equipment, but if the effort is focused mostly on building roads and bridges, the impact would be negligible, she notes. TIER’s Sun expects Taiwan to implement its own public works stimulus program to boost growth in the second half of 2017.

Currently DGBAS forecasts 2017 growth at 1.87%, while Academia Sinica’s Institute of Economics puts the expected growth rate at 1.68%, and the Chung-Hua Institution for Economic Research (CIER) has it at 1.73%. In November, TIER projected 2017’s GDP growth at 1.65%, but Sun says that the number will be raised in its next forecast.

Domestically, 2016 ended with a slight month-on-month decline in the Consumer Price Index, from 1.97% in November to 1.7% in December, while unemployment also fell, from 3.95% in October to 3.87% in November (the latest available figure).

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