Taiwan Economic Outlook – August 2019

Trade War Sends Q2 to Sluggish Start

Normally June is a peak season for exports of electronics items, the bulwark of the Taiwan economy. But the value of export orders received in June fell by 4.5% from the level of the same month last year to come to US$38.5 billion, the eighth straight month to register a decline. The hardest hit sector was machinery, which saw a 22.3% decrease in the value of export orders as customers in China and elsewhere held back on expansion plans due to the uncertainty in the international market. 

Analysts expect a continued drop in export orders for July. “Affected by the U.S.-China trade spat, the global economy is softening and clients give their orders with a conservative and hesitant approach,” the Ministry of Economic Affairs (MOEA) said in a statement.

At the same time, the Ministry was more hopeful about prospects for the second half of the year. It said orders could pick up due to rising demand for fifth-generation (5G) telecommunications equipment, as well as retailers’ preparation for the year-end holiday shopping season, with new smart phone offerings expected to spur sales. Taiwan manufacturers are key parts of the supply chain for major brands such as Apple. 

Overall foreign trade figures for the first half showed exports falling by 3.4% to US$158.2 billion, while imports rose by a miniscule 0.1% to US$138.3 billion for a trade balance of US$25.6 billion. But while trade with most major trade partners was mired in the negative column, business with the U.S. was a prominent exception. Taiwan’s first-half exports to the U.S. jumped 17.4% and imports 14.3%, reflecting changing trading patterns as companies seek to avoid, or at least reduce, the impact of the U.S.-China tariff war.

 Academia Sinica’s preliminary calculation of Taiwan’s GDP growth rate for the second quarter was a relatively weak 1.75%, barely above the 1.71% officially recorded for Q1. The Chung-Hua Institution for Economic Research (CIER) in mid-July issued a forecast of 2.06% for Taiwan’s economic growth for the whole of 2019. CIER President Chen Shi-kuan said that private consumption and domestic investment would be the two main drivers of the growth, given the decline in exports. The labor market has remained stable, with Academia Sinica forecasting an unemployment rate of around 3.7% for the rest of 2019.