Taiwan Economic Outlook – August 2017

Export Recovery Fuels Higher GDP Growth

Optimism regarding Taiwan’s economy is rising alongside trade figures as the island continues to benefit from the ongoing recovery in the global economy. Nearly all of the local economic analytics firms have raised their forecasts for GDP growth for 2017, with Academia Sinica, Taiwan’s top academic research institution, coming in at the high end of the range. It projects growth for the year at 2.18%, up from its previous forecast of 1.68%. Yuanta-Polaris Research Institute maintained its forecast of 2.1% growth, and Taiwan’s Directorate General of Budget, Accounting and Statistics (DGBAS) foresees a 2.05% rise in GDP.

Although low by historical comparisons, the forecasts mark an improvement over last year’s 1.48% growth rate, and reflect optimism that global demand will continue to buoy exports. Taiwan’s exports – equivalent to 70% of total GDP and a major source of growth – have increased by 12.5% in the first half of the year, according to Bureau of Foreign Trade (BOFT) figures.

Taiwan’s key trading partners are continuing to enjoy moderate to strong growth, including the United States, whose first-quarter GDP growth estimates have been upwardly revised from 1.2% to 1.4%. The second quarter is forecast to reach 2.9% on the strength of domestic consumption and rising U.S. exports and industrial activity, which is spurring demand for Taiwan’s machinery.

Data Source: TWSE, Unit: NT$ billion

China’s economy likewise continues to hum, beating analysts’ expectations by seeing 6.9% growth for the first two quarters, according to PRC statistics. Even growth laggard Japan has seen its first quarter figures upwardly revised, beating the United States with 2.2% growth in the first quarter (Japan’s fifth consecutive quarter of growth), while ASEAN countries saw 4.8% GDP growth rates in Q2.

The administration of President Tsai Ing-wen has promoted economic ties with Southeast Asia as an alternative to what it sees as Taiwan’s overdependence on cross-Strait trade, and exports to the ASEAN region have burgeoned by 14.4% over the first half of 2017, rising to US$27.78 billion, equal to 18.8% of total exports. Yet exports to China and Hong Kong have risen even faster, at 16.9%, together accounting for 39.8% of Taiwan’s total exports, with a year-to-date value of US$58.8 billion. Imports from China/Hong Kong have likewise increased by 16% to reach US$23.9 million, 19% of the total, according to BOFT statistics.

Exports to the United States in the first half rose by 8.4% to come to US$17.37 billion, to the Eurozone by 6% to US$12.93 billion, and to Japan by 4.7% to US$9.81 billion. On the import side, the first-half total from Japan rose 8.5% to US$20.53 billion, while imports from the United States were up 6.4% to reach US$14.81 billion. As a proportion of Taiwan’s total imports, the U.S. contribution amounted to 11.9%, a higher proportion than in previous recent quarters when it stood at closer to 10%. But a trade gap in Taiwan’s favor remains. The Trump administration has placed Taiwan on a list of nations targeted for what it considers to be excessive bilateral trade surpluses with the United States.

Crude oil prices stabilized at around US$50 per barrel have bolstered Taiwan’s sales of mineral products including refined petroleum, which surged by 15.9% in the first half to reach US$5.9 billion. Petroleum imports meanwhile increased in value by 42%, to US$8 billion, 6.4% of all imports. Taiwan’s chemical and metals industries, representing 6.2% and 9.3% of total exports respectively, also saw strong growth for the year in annual comparisons. Chemical exports were up 8.4% to reach US$9.2 billion, and metals rose by 19.5% to US$13.79 billion.

Taiwan’s crucial Electronics and Machinery sector, comprising 54.9% of total exports, continued to rise in value. The first-half export level of US$81.16 billion in value was a 14.7% surge attributable chiefly to strong demand from the United States and China for Taiwan’s machinery and global demand for smartphones and other electronic devices and components.

Leading indicators are also in positive territory, with the Ministry of Economic Affairs reporting that export orders from January through June had reached a record US$223.63 billion, up 11.2% from the same period last year. Taiwan’s Purchasing Manager’s Index (PMI) likewise expanded for the 16th consecutive month to reach 57.6, according to the Chung-Hua Institution for Economic Research. Scores over 50 represent expansion.

Taiwan’s CPI rose from May’s 0.59% to 1% in June, while unemployment also measured a slight uptick from 3.66% in May to 3.74% in June.

Consumer confidence as measured by National Central University’s Research Center for Taiwan Economic Development also improved to 78.19 in July from 77.76 the previous month. Any score on the 200-point scale below 100 is considered pessimistic; Taiwan has never breached the 100-mark.