Taiwan: Growth slows to two-and-a-half year low in Q4 on softening domestic demand and weak exports
January 31, 2019
A preliminary estimate shows that economic growth continued to slow in the fourth quarter, as the trade sector remained on a feeble footing while domestic demand weakened somewhat. GDP expanded 1.8% year-on-year in Q4, down from Q3’s 2.3% and missing market expectations of 2.0%. On a seasonally-adjusted quarter-on-quarter basis, however, GDP growth was stable at Q3’s 0.4%.
On the domestic side of the economy, private consumption continued to soften, growing just 1.6% in annual terms in Q4 (Q3: +1.8% year-on-year), an over three-year low. Although the print was supported by spending related to the November election, this was outweighed by the poor performance of the stock market in the quarter which produced a negative wealth effect. Conversely, government consumption recovered from the 1.5% contraction logged in Q3, registering a robust 3.6% yoy expansion in Q4.
Overall, domestic demand in the fourth quarter was mainly dragged down by a slowdown in total investment, which followed an exceptional performance in Q3 that was predominantly owing to a very low base effect. Total investment growth fell from 16.8% in Q3 to 9.3% in Q4, stemming from weaker investment in machinery, equipment and transportation. However, the print was buttressed by higher government spending on infrastructure projects.
The external sector, meanwhile, remained frail in the fourth quarter. Goods and services export growth was a meager 1.2% in Q4, matching the performance logged in Q3 as demand in the all-important tech sector remained notably muted, owing particularly to a downturn in the tech cycle and lower-than-expected smartphone demand. However, imports of goods and services also slowed in the quarter, from 4.6% growth in Q3 to 4.1% in Q4. As a result, although the net growth contribution of the external sector improved somewhat, it remained negative, subtracting 1.4 percentage points to the GDP reading in the quarter (Q3: -1.7 percentage points).
Taiwan GDP Forecast
The Central Bank expects GDP to expand 2.3% in 2019. FocusEconomics Consensus Forecast panelists project GDP will grow 2.2% in 2019, which is unchanged from last month’s forecast. For 2020, the panel estimates that economic activity will increase 2.1%.
Author: Joffrey Simonet, Economist