Taiwan: Growth softens in Q1 as domestic demand weakens and exports remain feeble
Economic growth slightly slowed in the first quarter of 2019 from the fourth quarter’s paltry performance as domestic demand lost momentum, while low export demand for electronics continued to weigh on the country’s core growth engine. GDP expanded 1.7% year-on-year in Q1, edging down from Q4’s 1.8% as had been projected by market analysts. On a seasonally-adjusted quarter-on-quarter basis, however, GDP growth picked up from 0.4% in Q4 to 0.5% in Q1.
Looking at the domestic side of the economy, private consumption fell to just 1.5% year-on-year in Q1 from a revised 1.7% growth in Q4 (previously reported: +1.6% year-on-year). This was despite support from the stock market’s solid rebound since 1 January—producing a wealth effect—and slightly less pessimistic consumer confidence over the quarter. Government consumption meanwhile contracted a moderate 3.4% year-on-year, contrasting the 3.6% expansion logged in the previous quarter—due in part due to election-related spending in November.
As in the previous quarters, gross investment was the largest contributor to growth in Q1, though it also decelerated significantly from 9.4% recorded in Q4 to 6.8% year-on-year growth. The print was buttressed notably by the government’s ongoing investment efforts which include a large infrastructure package for this fiscal year.
The external sector, meanwhile, remained in the doldrums in the quarter. Goods and services exports logged a feeble 1.2% growth in Q1, down from 1.3% in Q4. Nominal merchandise trade data for the quarter further suggests that the demand for tech products in the quarter sharply contracted, suggesting that robust service exports supported the print somewhat. Nevertheless, imports of goods and services slowed more dramatically in the quarter, from 4.3% growth in Q4 to 1.5% in Q1. As a result, the net growth contribution of the external sector was nearly negligible at -0.1 percentage points, significantly improving from the 1.4 points of GDP subtracted in Q4.
Turning to the outlook, Iris Pang, Greater China economist at ING, commented:
“The government is trying to stabilise the economy, with plans to spend nearly TWD 2 trillion in 2019, or around 11% of nominal GDP. This spending has taken the form of investment, which contributed almost 1.4 percentage points to GDP growth. […] There will be a technical recovery in 2H19 because of the lower base of last year. But there won’t be a fundamental recovery in 2019 unless there are many new smart-devices going to market or a popular device that needs parts from Taiwan”.