Taiwan Economic Outlook – May 2018

Momentum Continues On Export Growth

The Taiwan economy continued its upward momentum through the first quarter of 2018 as exports maintained their double digit gains, unemployment stayed low, and consumer and business confidence remained high. On the back of International Monetary Fund (IMF) forecasts of rising global trade and growth, analysts expect Taiwan’s trade impetus to continue through the second quarter. Taiwan’s foreign direct investment (FDI) is likewise up in annual comparisons, posting US$2.2 billion for Q1, more than double the same period last year.  


Data from Taiwan’s Directorate-General of Budget, Accounting and Statistics (DGBAS) notes that GDP growth decelerated slightly in the first quarter of this year, growing by an estimated 3.04%, down slightly from the 3.28% growth posted year-on-year in the last quarter of 2017. The DGBAS forecasts growth in 2018 at 2.42%.  


Although manufacturing comprises less than one-third of Taiwan’s overall economy, exports –particularly of electronics and IT components – are key drivers of economic growth. The Machinery and Electrical Equipment component of Taiwan’s exports, which comprises 54.3% of Taiwan’s total exports, grew 9.8% in the first quarter, reaching US$43.32 billion as tracked by the Bureau of Foreign Trade (BOFT). Machinery, which alone accounts for 7.5% of total exports, surged 18.3% for the quarter.  

 Among other sectors that saw double-digit growth in Q1 were Chemicals, which skyrocketed 20.8% to US$5.5 billion, 7% of the total. Plastics likewise rose by a strong 14.7% to reach US$6 billion, 7.6% of the total.  


Demand from Taiwan’s trade partners remains strong as the global economy continues to grow. Taiwan sent 41.3% of its total exports, valued at US$32.9 billion, to chief trade partner and political rival China and its SAR, Hong Kong, a 10.6% rise year to date. Exports to the United States rose by 9% in annual comparisons, reaching US$8.9 billion, 11.6% of the total. Imports from the United States also rose but at a slower 4% pace, to reach US$7.88 billion, 11.6% of the total.  

The export trade with ASEAN economies remains strong but grew at only a 2.2% pace despite the government’s New Southbound Policy of strengthening ties to the region. Total exports in year-to-date annual comparisons hit US$14.12 billion, 17.7% of the total. Exports to Europe, in contrast, surged in Q1, climbing by 12.9% to reach US$7.07 billion, 8.9% of total exports.  


Taiwan’s export boom looks likely to continue. Export orders, a leading indicator, rose 3.2% in March, reaching US$42.38 billion, according to the Ministry of Economic Affairs. Orders rose mostly for basic metals (by 16.6%), plastics and rubber (12.5%), machinery (11.9%), and chemicals (10%). Export orders increased by 6.5% to the United States, 6.8% to China, and 6.5% to Japan, but fell 2.3% to ASEAN.  


The Chung-Hua Institution for Economic Research (CIER) noted that its Purchasing Managers Index (PMI), a leading indicator measuring manufacturers’ sentiment, surged by 13.2 points in March to reach 63.6. The PMI is measured on a 100-point scale, with any number 50 or above considered optimistic. The March index was the second highest score the PMI has recorded, coming in behind last March’s 65.2.  


Reflecting these optimistic trends, Taiwan’s unemployment rate declined from 3.7% in February to 3.66% in March, and the Consumer Price Index fell from a 2.19% annualized increase in February to 1.57% in March.  


Nevertheless, worries over continued expansion of income and employment have contributed to a slight drop in the Consumer Confidence Index. Based on a survey conducted by the Research Center for Taiwan Economic Development at National Central University, the index declined by 0.97 points in March to 86.89 points in April. The index is on a 200-point scale and any number below 100 is considered pessimistic; the index has never breached the 100-point mark.

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