Taiwan: GDP rebounds in Q3 amid strong exports growth
Economic activity bounced back in the third quarter, with GDP expanding 3.3% year-on-year, contrasting the 0.6% contraction seen in the second quarter and marking an over two-year high. Moreover, on a seasonally-adjusted quarter-on-quarter basis, economic activity soared 4.4% in Q3, rebounding from the previous quarter’s 1.4% contraction and marking the best result in over a decade.
The third quarter’s recovery was chiefly led by the external sector, amid sturdy electronics demand from the U.S. and China. Exports of goods and services rebounded, jumping 3.5% year-on-year in Q3, which marked the best reading in a year (Q2: -3.5% yoy). In addition, imports of goods and services fell at a slower pace of 1.8% in Q3 (Q2: -4.1% yoy). As a result, the external sector’s contribution to overall growth improved from minus 0.1 percentage points in Q2 to plus 3.2 percentage points in Q3.
Meanwhile, domestic demand remained somewhat muted, despite improving slightly from the previous quarter. Household consumption declined at a softer rate of 1.5% yoy in Q3, which marked the best reading since Q4 2019 (Q2 2020: -5.0% yoy). Moreover, government spending rebounded, growing 3.2% in Q3 (Q2: -1.0% yoy). Meanwhile, although preliminary Q3 data for fixed investment is not yet available, it likely grew again in the third quarter, following the 2.7% expansion in the second quarter.
Commenting on the GDP outlook, Jeong Woo Park, economist at Nomura, said:
“We expect Taiwan’s economic recovery to become more broad-based and sustain into next year, underpinned by three durable drivers. First, the pandemic has proven to be a blessing in disguise for Taiwan, which is well positioned to take advantage of the global transformation towards a digital economy. […] Second, domestic demand is supported by the structural trend of reshoring (Taiwanese firms relocating from China back to Taiwan), partly aided by the government’s incentives. This has helped boost domestic investment […]. Third, Taiwan has recorded zero local infections cases over the past 200 days. An effective containment of the virus and stimulus measures have helped consumers gradually increase their spending. […]
After incorporating the Q3 data, we raise our 2020 GDP growth forecast slightly to 1.8% y-o-y from 1.5% (Consensus: 1.0%; CBC: 1.6%) and our 2021 GDP growth forecast to 3.4% from 3.2% (Consensus: 3.2%; CBC: 3.3%).”