Taiwan: GDP growth gains momentum in the third quarter
October 28, 2022
GDP growth gained pace to 4.1% year on year in the third quarter, from 3.0% in the second quarter. Q3's reading marked the strongest increase since Q4 2021, and overshot market expectations of 3.2%.
Private consumption growth improved to 7.5% year-on-year in Q3 compared to a 2.9% expansion in Q2, as the impact of Covid-19 faded and price pressures eased. Government consumption growth, meanwhile, softened to 2.4% in Q3 (Q2: +5.8% yoy). Total investment growth slowed to 0.9% from 9.4% in Q2, likely amid a maturing global semiconductor cycle and a more adverse outlook for global demand.
On the external front, exports of goods and services growth fell to an over two-year low of 1.4% in the third quarter (Q2: +4.3% yoy), amid sluggish demand from key trading partner China. In addition, imports of goods and services growth moderated to 1.2% in Q3 (Q2: +8.8% yoy), marking the worst reading since Q4 2020.
On a seasonally-adjusted quarter-on-quarter basis, GDP rebounded, growing 1.6% in Q3, contrasting the previous quarter's 1.8% contraction. Q3's reading marked the best result since Q4 2021.
Despite the resilient Q3 reading, economic momentum will slow ahead on higher interest rates, and as activity in the developed world slows and China’s economy continues to be held back by Covid-19 restrictions and a property downturn.
ING’s Iris Pang said:
“As capital formation grew only 0.91%YoY in 3Q after strong growth of 9.42%YoY in 2Q22, we expect the future growth of Taiwan's economy will be slower than previously expected next year if the global market for semiconductors does not recover. We are revising GDP forecasts downward to 3.2% from 3.4% for 2022, and to 3.1% from 3.4% for 2023. That is mainly a reflection of our US and Europe economic forecasts of a mild recession and my upcoming downward revision of China's GDP forecasts. Slower global economic growth implies weak demand for goods and therefore semiconductors.”
UOB’s Ho Woei Chen struck a similar tone:
“The outlook for Taiwan’s economy has weakened as global demand slows and risks to the semiconductor industry are skewed to the downside with US measures to limit China’s access to technology imports adding to uncertainties for Taiwan’s semiconductor companies. Mainland China and Hong Kong account for nearly 40% of its exports while by products, semiconductors also made up 40% of its total exports. Thus, any fallout from US-China conflicts will have a significant impact on Taiwan’s economy.”
Author: Oliver Reynolds, Economist