Taiwan Economic Outlook
The economy registered expansions of 1.4% in both annual and quarter-on-quarter terms in Q2, overshooting market expectations. The year-on-year reading was driven by double-digit private consumption growth, which more than offset lower exports and investment. Turning to Q3, economic activity likely continues to expand both year on year and sequentially. Private spending and tourism appear to be driving factors behind year on year growth: In July, retail sales rose 5% in annual terms and tourist arrivals reached 55% of 2019 levels, up from 51% in Q2. Moreover, the export-oriented industrial sector is set to exert less of a drag on activity in Q3, as the declines in merchandise exports and industrial production—though still sharp—have eased so far this quarter, likely thanks to firming demand for high-end electronics.
Inflation came in at 2.5% in August, up from July’s 1.9% and the highest inflation rate since January. That said, inflation remains low compared to the levels in other advanced economies. Our panelists see inflation averaging close to 2% for the remainder of this year. The recent uptick in energy prices will be broadly offset by the dampening effect of past rate hikes.