Taiwan Economic Outlook – November 2018

More Mixed Signals

The release of Taiwan’s September trade figures brought some good news – a record monthly level for exports – but any exuberance was dimmed by uncertainties about the potential impact of the “trade war” being waged between the United States and China, given the large number of Taiwanese enterprises with production facilities in China. Exports in September rose by 2.6% from a year earlier to reach US$29.6 billion, with a favorable balance of trade of US$4.3 billion. That brought eight-month totals for the year to US$250.1 billion in exports (up 8.1% year-on-year) and US$213.4 billion in imports (up 11.9%), for a surplus of US$36.7 billion. Exports orders, at US$47.86 billion, were the highest ever for the month of September, although – in a possible indication of the “trade war effect” – substantially less than had been forecast.


The strong current performance coupled with doubts about the future were reflected in the actions of several economic forecasting organizations that raised projections for GDP growth this year while making a downward adjustment for 2019. Cathay Financial Holding in early October raised its growth forecast for 2018 to 2.8% from its previous estimate of 2.3%, based on the strong showing in exports. It sees slower growth of 2.2% next year due to cyclical factors as well as the U.S.-China trade war and the U.S. Federal Reserve’s moves to hike interest rates. The Chung-Hua Institution for Economic Research (CIER) similarly raised its 2018 forecast – to 2.61%, compared to the 2.48% estimated in July. For next year, CIER reduced its projection from the previous 2.23% to 2.18%. “A protracted trade war would deal a blow to the world’s technology supply chain and the nation’s export-reliant economy,” CIER acting president Wang Jiann-chyuan told the media.

In its September survey of manufacturers’ confidence in the business climate, the Taiwan Institute of Economic Research (TIER) found that 11.6% of companies expected business to improve in the short-term, 42.1% saw it as likely to get worse, and 46.3% felt it would remain the same. Responses regarding a six-month outlook were 15.7% for improvement, 32% for worsening, and 52.3% for remaining constant.

For the ninth consecutive time, the quarterly board meeting of the Central Bank in late September kept the rediscount rate steady at 1.375%. “A lenient monetary policy is favorable for financial market stability and economic growth,” Governor Yang Chin-long told a news conference following the meeting.