Taiwan: Economic growth speeds up in Q3
October 31, 2016
In the third quarter, GDP in Taiwan increased 2.1% annually, according to a preliminary estimate. The result overshot both the 0.7% expansion recorded in the second quarter and the 1.8% increase the markets had expected and represented the fastest pace since Q1 2015. A quarter-on-quarter comparison confirms the improvement suggested by the annual data as GDP increased a seasonally-adjusted 1.1% in Q3, which came in above the 0.1% increase in Q2.
The acceleration was mainly the result of faster growth in domestic demand, which was buttressed by strong growth in both private and government consumption as well as in investment. Household spending grew 2.4% annually in Q3, which was up from the 1.2% increase in Q2, and government consumption accelerated from a 2.0% expansion in Q2 to a 3.6% increase in Q3. Meanwhile, total investment swung from a 3.1% decrease in Q2 to a 3.2% expansion in Q3, buttressed by strong restocking of inventories and a sharp increase in gross fixed capital formation. The strong increase in investment was mainly led by the recovery in the industrial sector, particularly in the electronics and semiconductors sector.
On the external front, growth in exports of goods and services escalated from 0.6% in Q2 to 3.6% in Q3, supported by higher demand from for Taiwanese semiconductors in China. Moreover, imports picked up momentum in the third quarter due to strong domestic demand. Imports increased 5.1% in Q3—the fastest pace since Q4 2014—which overshot the 0.2% rise in Q2. As the expansion in imports outpaced exports, the contribution of net exports to overall economic growth deteriorated from a 0.3 percentage-point contribution in Q2 to a 0.7 percentage-point detraction in Q3.
Despite the encouraging reading, the Taiwanese economy is likely to slow in the final quarter of 2016 as electronic parts manufacturers draw down inventories. Moreover, Taiwan’s economy is one of the most exposed to China’s, which is expected to cool in the fourth quarter as the government clamps down on overheated property markets.
Author: Ricardo Aceves, Senior Economist