Taiwan Economic Outlook – February 2019

Feeling the Pinch

With the global trade environment growing increasingly uncertain, Taiwan recorded exports worth US$28.6 billion in December, 3% less than in the same month a year earlier. The Ministry of Finance attributed the dip largely to sluggish demand for semiconductors used in manufacturing smartphones. New export orders received in December told a similar story, totaling US$43.4 billion, compared to US$48.5 billion in December 2017. The decrease came mainly in orders from China, especially for machinery, reflecting Chinese retrenchment due to the trade tensions with the United States.

In view of the declining trade performance, the Taiwan Institute of Economic Research (TIER) in January adjusted its economic growth forecast for 2019 downward from 2.2% to 2.12%. In comparison, the institute calculates GDP growth for the fourth quarter of 2018 at 2.48%. At Taiwan’s other leading economic think tank, the Chung-Hua Institution for Economic Research, the latest forecast for 2019 GDP growth is 2.18% (set in December).

After a steady nine-month rise, industrial production in December registered a 1.22% drop from the same month in 2017. Another signal of a weakening economy was the Purchasing Managers’ Index, a leading indicator of economic health in the manufacturing and service sectors. The PMI in December fell to 44.8, the lowest level since the index was introduced in mid-2012. In addition, the color-coded monitoring index compiled by the government’s National Development Council dropped to the lower end of the “yellow-blue” band, nearing the “blue” portion of the spectrum representing contraction.

The unemployment rate for the whole of 2018 came to 3.71%, an 18-year low according to the Directorate General of Budget, Accounting and Statistics. The number of people working in the service sector rose by 58,000 last year, while manufacturing jobs increased by 20,000.

Final trade figures for 2018 showed a 5.9% increase in exports to reach US$336 billion, and a 10.6% rise in imports to US$286.6 billion. The trade surplus of US$49.4 billion was a decline from the US$58 billion of 2017. Total trade with the United States came to US$74.4 billion – US$39.7 billion in Taiwanese exports and US$34.7 billion in imports.