Taiwan: GDP continues growing at a strong rate in Q4
January 31, 2018
A preliminary estimate showed that the Taiwanese economy accelerated in the final quarter of 2017, aided by a well-performing external sector and stronger domestic demand. GDP expanded 3.3% in year-on-year terms in Q4, recording the fastest annual growth rate in nearly three years and coming in well above market expectations of a 2.5% rise. The solid Q4 figure came on top of the similarly robust 3.1% expansion registered in Q3 and brought total growth for 2017 to 2.8%, up from 1.4% in 2016. On a seasonally-adjusted quarter-on-quarter basis, GDP growth was 1.0% in Q4, following a strong 1.7% increase in Q3.
The external sector contributed the most to Q4’s print. Taiwan’s economy benefited from improved global economic conditions and strong demand for electronic components, particularly semiconductors, and machinery. On an annual basis, export growth increased 6.0% in Q4, a strong gain but below Q3’s jump of 11.7%. Import growth slowed in Q4 to 1.8% from the 6.9% rise recorded in Q3. As export growth outpaced import growth, the contribution from net exports to the economy was positive in Q4, albeit at a lower magnitude than in Q3, adding 3.0 percentage points to overall GDP growth (Q3: plus 3.8 percentage points).
Meanwhile, domestic demand conditions showed modest improvement in Q4. Private consumption increased 2.9% in annual terms (Q3: +2.7% year-on-year), the fastest pace of growth since the second quarter of 2015, on the back of higher wage gains and a positive consumer outlook on asset price growth. Gross capital formation continued to drag on growth, however, on lower investment in machinery and equipment. Nonetheless, gross capital expenditure subtracted less from overall growth in Q4 than in the previous quarter, when gross capital expenditure plunged 10.4% (Q4: -4.8% year-on-year). Government spending contracted 1.3% in Q4, contrasting the 0.8% increase recorded in the previous quarter.
Looking ahead, some concerns have emerged on whether the dynamism of Taiwan’s tech exports can be sustained, as Apple recently announced that it will cut its iPhone X production target by half in the first quarter of 2018. As such, a moderation in export activity in the smartphone segment could hit first-quarter GDP results. Overall, though, it is expected that the economy’s solid performance in the final quarter of 2017 will continue in 2018, supported by a favorable global growth environment and improving demand for exports. Moreover, on the domestic front, government policies supporting household finances, such as salary increases for public servants and income tax reductions for top earners, and increased public investment should contribute in shoring up domestic demand.
Author: Javier Colato, Economist