Taiwan: Economic momentum remains broadly steady in Q1
A preliminary estimate shows that economic growth continued at a broadly stable pace in the first quarter, supported by healthy domestic demand and a resilient external sector. GDP expanded 3.0% annually in Q1, easing slightly from Q4’s robust 3.3% expansion, but beating market expectations of 2.8% growth. On a seasonally-adjusted quarter-on-quarter basis, GDP growth slowed to 0.3% in Q1 from 1.0% in Q4.
Domestic demand gained traction in Q1. Private consumption expanded 3.0% over the previous year, accelerating at the fastest pace since the second quarter of 2015 (Q4: +2.9% year-on-year); it was buttressed by buoyant consumer confidence and higher income growth. Government spending also contributed to stronger domestic demand in Q1, rebounding to 6.3% growth from the 1.3% contraction recorded in Q4 on the back of public salary increases and higher public investment. Although gross capital formation continued to drag on growth due to lower machinery and equipment investment, the contraction was considerably softer than in Q4 (Q1: -1.7% yoy; Q4: -4.7% yoy).
Meanwhile, the external sector lost steam in Q1 as import growth picked up in conjunction with the recovery in domestic demand. Import growth expanded 5.6% over the previous year, accelerating from the 1.8% rise registered in Q4. Despite expectations of a downturn in the tech cycle and softer demand for smartphones such as the iPhone X, export growth was healthy, demonstrating the resilience of the external sector. Exports expanded 6.0% in Q1, matching Q4’s print. As export growth nevertheless outpaced import growth, the contribution from net exports to the economy was positive in Q1, adding 0.9 percentage points to overall GDP growth (Q4: plus 3.0 percentage points).
Q1’s performance set the economy on a stable growth trajectory for 2018, with domestic demand at the helm. Downside risks continue to loom large, however, as the trade-reliant economy faces a potential peak in the tech cycle and semiconductor manufacturers may be hit from weaker demand for smartphones. Moreover, the recovery in domestic demand could continue to spur imports and weigh on the net export contribution to growth. That said, improved domestic dynamics should help to offset any weakness in the tech industry, and growth in Q2 is expected to be relatively steady.