Taiwan Economic Outlook – March 2018

Positive News to Start The Year of the Dog

Taiwan welcomed the new year with continuing good news on the economic front, with major metrics pointing to continued growth and prosperity.

The TAIEX weighted index of stock prices closed February 27 down slightly but still maintaining its high average at 10,815 points. Unemployment continued its downward slide in January to 3.63% from 3.66% the previous month, according to the Directorate-General of Budget, Accounting and Statistics (DGBAS), which also notes that the Consumer Price Index (CPI) declined to 0.88% in January from December’s 1.22%. These trends are contributing to rising consumer confidence, according to the Consumer Confidence Index, a survey conducted by the National Central University’s Research Center for Taiwan Economic Development.

The reason for this optimism is Taiwan’s continuing strong run in exports, a vital source of economic growth for the trade-dependent nation. Exports rose 15.33% in January in annual comparisons, the third straight month of double-digit growth, attributed to strong global demand and rising raw material prices. The numbers also reflect a greater number of business days in January this year, as last year the Chinese New Year holiday started on January 27 and didn’t end until February 2, while this year the entire holiday fell in February.

Exports reached US$27.38 billion in January, while imports surged by an even greater 23.3% to reach US$24.96 billion, narrowing Taiwan’s trade balance to a still favorable US$2.42 billion.

As nearly 70% of imports are raw materials primarily intended for manufacture into export goods, rising imports reflect higher demand from Taiwan’s manufacturers, as seen in the rising Purchasing Managers Index (PMI), a leading indicator of manufacturing activity. Taiwan’s PMI, as measured by the Chung-Hua Institution for Economic Research (CIER), reached 59 on a 100-point scale, up from the previous month’s 58. A 50 or higher indicates growth in the manufacturing sector. This was the 23rd month of manufacturing expansion, the best performance since 2012.

Based on a survey of economists, Reuters reported that export orders in January were forecast to expand 16.1% in annual comparisons, down slightly from the 17.5% growth seen in December. Export orders are likewise a leading indicator of manufacturing activity over the coming months.

Gordon Sun, director of the Economic Forecasting Center at the Taiwan Institute of Economic Research (TIER), was quoted in the media as explaining that Taiwan’s economy continues to ride the wave of global economic expansion, particularly in the United States, which took 11.5% of Taiwan’s exports in January, valued at US$3.13 billion. According to Sun, higher exports boost domestic demand and raise private consumption, which increases confidence in the overall economy in all sectors.

China, together with Hong Kong, continues to be the major destination for Taiwan’s exports, taking 40.7% of total exports in January, totaling US$11.15 billion, a strong 21% increase compared to the same time last year. Other major export destinations likewise saw strong growth, including ASEAN, which took US$5.06 billion in Taiwan exports in January, 18.5% of the total and a 13.9% increase year on year. Exports to the European Union rose a more modest 4.7%, reaching US$2.32 billion, 8.5% of the total.