Taiwan: GDP growth surprises to the upside in Q3
October 31, 2017
A preliminary estimate showed that the Taiwanese economy accelerated markedly in the third quarter, buttressed by a well-performing external sector. GDP increased 3.1% in year-on-year terms in Q3, marking the best reading in two and a half years and coming well above market expectations of a 2.2% rise. The robust Q3 figure followed a 2.1% expansion recorded in the previous quarter.
The external sector contributed the most to Q3’s print. The export-driven economy benefited in the quarter from the cyclical upswing in the electronics sector and improved global economic growth. Exports rose 11.2% from the previous year in Q3, notably above the 5.0% increase recorded in Q2 and the highest figure since Q4 2010. Import growth accelerated at a slower pace, from a pick-up of 4.4% in Q2 to a 6.5% expansion in Q3. As export growth outpaced import growth, the external sector’s net contribution to overall growth rose from 0.7 percentage points in Q2 to a 3.8 percentage-point contribution in Q3.
Despite the strong upturn in the external sector, domestic demand remained lackluster throughout the quarter. Private consumption growth was slightly weaker in Q3 compared with the previous quarter as real wage growth struggled to gain significant momentum (Q3: +1.9% year-on-year; Q2: +2.0% yoy). Government consumption also moderated slightly from 0.8% growth in Q2 to a 0.7% increase in Q3. Gross capital formation—which was not reported in the preliminary release—unexpectedly plunged in the third quarter, swinging from a 0.2% increase in Q2 to a 7.8% decrease in Q3.
The pick-up in growth was also reflected in quarter-on-quarter data. GDP growth adjusted for seasonal factors leaped 1.8% in Q3 from the previous quarter, a much stronger reading than the 0.1% increase recorded in Q2.
The unexpectedly strong GDP print is likely to add upward pressure to our panelists’ growth forecasts, particularly as the tailwinds that supported growth in Q3 are set to remain in place in Q4 and beyond. Export demand is expected to receive an additional boost in the fourth quarter from the launch of the new iPhone in November, while solid global growth is likely to keep demand for Taiwanese goods and services strong throughout 2018. The domestic sector is also seen faring better in upcoming quarters as signs of an improving labor market and a recovering housing sector become more significant. The government’s expansionary fiscal stance, including a special infrastructure budget, will shore up capital expenditure next year.
Author: David Ampudia, Economist