Taiwan: Economy flashes green light for the first time in Q2 since Q3 2015
September 14, 2016
Taiwan’s economy increased for the first time in Q2, which followed three consecutive quarters of contraction. GDP expanded 0.7% in Q2 compared to the same period last year, according to a second revision released by the Directorate General of Budget Accounting and Statistics (DGBAS). The result matched the preliminary estimated previously released and contrasted the revised 0.3% contraction in Q1 (previously reported: -0.7% year-on-year). Taiwan’s annual GDP began to decrease in Q3 2015 and fell at the fastest pace in the final quarter of 2015 at an annual rate of 0.9%.
Q2’s upturn resulted from an improvement net trade, which contributed 0.6 percentage to overall GDP growth as exports of goods and services swung from a 4.0% decrease in Q1 to a 0.6% expansion in Q2. Imports also rebounded, but less strongly (Q2: +0.2% yoy; Q1 -1.5% yoy). The rebound in exports was driven by stronger demand for Taiwanese semiconductors in China.
On the domestic front, growth in private consumption was 1.2% in Q2, which was nearly half the 2.5% recorded in Q1. The slowdown is a sign that the recent weakening in wages growth and employment likely spilled over into households’ spending. Government spending also decelerated in Q2, but a source of concern was a further contraction in gross fixed investment (Q2: -0.1% yoy; Q1: -0.2% yoy), which was likely hampered by a slowdown in construction.
Sequential data showed that GDP increased a paltry 0.1% in seasonally-adjusted terms in Q2, which came in well below the 0.9% expansion recorded in Q1.
Since the external environment is gradually improving owing to a stabilization of the Chinese economy, Taiwan’s external sector will likely continue showing positive developments in H2 2016. This, in turn, will have a positive impact on the manufacturing sector. However, domestic demand is expected to remain subdued.
Author: Ricardo Aceves, Senior Economist