Taiwan Economic Outlook – September 2019

Taiwan made headlines this August for a Q2 growth rate of 2.41%, propelling it well ahead of the other three Asian Tigers for the first half. This increase is at least partially attributable to the reshoring of a number of Taiwanese businesses from China, encouraged by government incentives and the ongoing trade war between China and the U.S. Total inward investment from these returning companies has exceeded NT$500 billion (US$15.9 billion) so far this year, double the government’s original goal for 2019, and is expected to reach NT$800 billion (US$25.4 billion) by the end of the year. Academia Sinica forecasts that real private investment overall will increase by 4.61% year-on-year in 2019, complemented by growth of 5.5% in real fixed capital spending.

U.S.-China trade tensions have led to a continued pattern of increased exports to the U.S., paired with a decline in exports to China and other major trade partners. The Taiwan Institute of Economic Research (TIER) found that total exports for July decreased 0.53% from a year earlier, while exports to the U.S. spiked 21.7% from July 2018. Meanwhile, total imports dropped by 5.42% in July. The trade balance for January to July period came to a US$23.49 billion surplus, down slightly from June. Export orders experienced their ninth consecutive month of year-on-year decline, falling 3% from July 2018 to US$40.53 billion, reported the Ministry of Economic Affairs (MOEA). Base metals and machinery were the hardest hit sectors, suffering respective 16.1% and 19.7% drops in export orders from July the previous year.

TIER’s manufacturing composite indicator moved up by 2.23 points in August, reversing a three-month decline. Nevertheless, its August survey of manufacturers’ views of the business climate recorded a slight increase in the percentage of firms holding a negative outlook for the next six months. The survey found that 23% of respondents expected that business would improve, 23.9% predicted that it would worsen, and 54.1% felt that there would be no change.

Private consumption increased significantly in July, temporarily making up for the relatively weak growth seen in the first half. Taiwan’s retail sector reported record monthly sales of NT$326.8 billion, a 6.7% increase from July 2018, while the wholesale sector saw sales of NT$905.4 billion, a 6% dip from June but up 1% from the previous year. Sectors performing well included automobiles and motorbikes, food and beverage, and e-commerce. Business is expected to experience a temporary decline in August, however, due to the taboos surrounding big purchases during Ghost Month.