Taiwan Economic Outlook – May 2019

Momentum Slows

Two key institutions in April trimmed their forecasts for Taiwan’s GDP growth in 2019, citing falling exports as global demand for consumer electronics slumped amid a prolonged U.S.-China trade war. Standard Chartered Bank cut an earlier GDP forecast of 2.5% to 2.1%, with its chief Taiwan-based economist saying that the first quarter’s 4.2% year-on-year drop in exports was far worse than expected. The Chung-Hua Institution for Economic Research also lowered a previous GDP growth forecast of 2.63% to 2.15%.

Although the government’s Directorate General of Budget, Accounting and Statistics continues to put Taiwan’s GDP growth for this year at 2.27%, its advance estimate for first quarter GDP growth of 1.72% year-on-year represented the slowest quarterly economic growth in more than two years. Private consumption at 1.45% was a drop from the 1.67% of the fourth quarter last year. DGBAS cited a decrease in the sales of cars and information and communications equipment, along with a slump in financial services.

Exports in March fell 4.4% year-on-year to US$28.68 billion. Total imports rose by 6.6% from a year earlier to reach US$25.56 billion, for a favorable trade balance of US$3.12 billion. While exports of information, communication, and audio-video products grew by 23.1%, exports of electronic components – which are frequently shipped to China for reassembly – plunged by 13.3%.

Export orders, an indication of the outlook for the next few months, revealed a grimmer picture. They declined in March by 9% year-on-year to US$38.59 billion, the fifth straight month of negative growth. At 8.4%, export orders posted their biggest annual drop for a first quarter since the global financial crisis in 2009, when they tumbled 30%. The weak order book suggests that global electronics demand could remain lackluster for some time, while machinery orders have also declined due to business caution in China relating to the trade war with the U.S.


The Ministry of Finance suggests that launches of new smartphone models and demand for new technologies, such as artificial intelligence and 5G products, could support a rebound in electronics orders in the second half of the year. 5G networks are coming online in the U.S., Canada, China, South Korea, and elsewhere this year, but probably won’t be widespread until 2020, Reuters reported.

Another development is that some China-based Taiwanese businesses have been moving operations back to Taiwan either completely or partially. Along those lines, Standard Chartered economist Tony Phoo notes that imports of capital equipment increased 15.4% in the first quarter, after flat growth in the previous quarter. “The U.S.-China trade dispute might not be the sole reason why Taiwanese companies are returning home but acted as a catalyst for those who were hesitant about moving out of China,” Phoo told local media.