Taiwan: Economic growth makes modest gain in Q2
July 28, 2017
Taiwan’s GDP increased 2.1% year-on-year in the second quarter of the year, coming in at market expectations. The figure, while strong, marked a deceleration from the 2.7% expansion in Q1. The solid expansion was driven by resilient foreign demand of electronic components, which nonetheless ebbed as a result of weaker smartphone production in mainland China.
The key external sector contributed strongly to growth as imports growth decelerated at a faster pace than exports. The external sector’s net contribution to GDP improved from a 0.2 percentage-point addition in Q1 to add 0.7 percentage points in Q2, the largest positive contribution in more than two years. Exports growth remained resilient at a 5.0% expansion (Q1: +7.3% year-on-year), as demand from mainland China continued to dwindle following a surge in demand earlier this year linked to the Lunar New Year. Imports also eased notably in Q2, decelerating from a 7.6% expansion in Q1 to 4.4%.
On the domestic side of the economy, private consumption mirrored Q1’s 2.0% increase in Q2, while government spending returned to growth following a one-off slump in Q1 (Q1: -4.7% yoy; Q2: +0.8% yoy). Investment spending took a hit in the quarter compared with the previous quarter’s figure, due to decreased capital spending from semiconductor manufacturers and airlines (Q1: +8.1% yoy; Q2:+0.2% yoy).
Despite the still-strong expansion in the headline figure, economic growth fared worse in quarterly terms. GDP—adjusted for seasonal factors—expanded 0.1% from the previous quarter in Q2, a downshift over Q1’s 0.9% increase.
As the Taiwanese economy is ultra-reliant on trade for GDP growth, looming challenges of potential trade protectionism abroad and its estranged relationship with China could pose risks to future growth. Chinese restrictions on group tourism to Taiwan did not seem to affect this quarter’s readings, however if China takes a stricter response to President Tsai Ing-wen’s resistance to supporting the One-China policy, the economy could begin to feel the pressure.
Author: Lindsey Ice, Economist