[ Trade News ]Taiwan economic growth beats forecasts

2022.09.27

Growth in Taiwan’s export-driven economy beat market expectations in the second quarter as consumer spending picked up, despite concerns about slow expansion in overseas trade.

The economy grew 2.3 per cent between April and June from the same period of last year, the government said on Wednesday. That surpassed the consensus forecast of 2.1 per cent in a Bloomberg survey of economists, and followed first-quarter growth of 1.7 per cent.

The announcement came a week after South Korea also outperformed forecasts by reporting year-on-year growth of 2.3 per cent for the same period.

“Asia’s smaller trade-exposed economies are holding up better than expected despite the continued softening of Chinese growth,” wrote HSBC economist Donna Kwok. Domestic consumption accounted for 40 per cent of overall growth, she estimated.

Taiwan’s struggling labour market means it is unclear whether that consumption growth is sustainable, economists say. While unemployment is low, real wages have been falling gradually for years. Data for May showed average earnings fell 0.3 per cent from a year earlier.

Nonetheless, consumption grew 5.3 per cent quarter on quarter, rebounding from a 0.4 per cent fall in the first three months of the year, according to seasonally adjusted estimates by JPMorgan.

The “somewhat surprising” rebound in spending, said JPMorgan economist Grace Ng, “probably suggests that Taiwan consumers may have slowed down savings to counter the near-term impact of slowing income growth”.

However, the performance of exports – which account for about two-thirds of gross domestic product – will be crucial in determining whether Taiwan’s economy meets the government’s forecast of 2.4 per cent annual growth.

Exports rose 5 per cent year on year in the second quarter, after growth of 4.8 per cent in the previous quarter.

“With China still slowing and the impact of the US Fed’s anticipated [quantitative easing] tapering yet to fully unfold, risks remain tilted to the downside,” Ms Kwok said.

Economists say Taiwan’s second-half performance depends largely on whether growth recovers in China, its largest trade partner, as well as in western markets for the electronics goods that together account for a third of Taiwan’s exports.

Early indications are mixed, with export orders falling by an annual 3.4 per cent in June. Raymond Yeung, an economist at ANZ, said this fall was driven mainly by poor demand from China, but he noted a government survey showing a more confident outlook among exporters for the third quarter.

Taiwan’s government has tried to bolster the economy by revising an unpopular capital gains tax that many blame for the poor performance of the local stock market in the past year.

It also recently signed an agreement with China liberalising trade in services, as well as a landmark trade agreement with New Zealand – Taiwan’s first with a nation that does not formally recognise the government in Taipei.