Taiwan: Headline growth softens in Q1, understates economic momentum
April 28, 2017
Taiwan’s GDP increased 2.6% year-on-year in the first quarter of the year, exceeding expectations of a more moderate 2.4% expansion. The reading, a deceleration from Q4’s robust 2.9% expansion, was driven by resilient domestic consumption and a pickup in exports on the heels of strong external demand for electronic components. Despite the deceleration in the headline figure, economic growth fared better in quarterly terms. GDP—adjusted for seasonal factors—expanded 0.7% from the previous quarter in Q1, an improvement over Q4’s 0.5% increase.
The trade-reliant economy continued to weather the plunge in visitor arrivals caused by Chinese restrictions on group tours to Taiwan. This was underscored by the resilience shown in exports growth, which benefited from increased demand overseas for high-tech components. As a result, exports only experienced a mild slowdown to 7.0% in Q1 from the 8.0% expansion in Q4 2016. A sharper slowdown in imports (Q4 2016: +9.6% year-on-year; Q1 2017: +7.2% yoy) drove the net contribution of the external sector to overall growth from a 0.5 percentage-point subtraction in Q4 to a 0.3 percentage-point addition in Q1.
The headline figure was heavily dragged on by a plunge in government consumption, which contracted the most since June 2003 on the back of a 4.7% drop in Q1 (Q4: +1.0% year-on-year). The rest of the domestic economy, however, performed much better during the quarter. Private consumption was steady in Q1 at Q4’s 1.6% expansion, with spending on utilities and transport showing resilience in the quarter. Gross investment was also unchanged in the first quarter at Q4’s robust 8.1% increase, with machinery and equipment investment in particular showing strong momentum.
Several bright spots in the economy suggest that momentum in the country’s economic recovery is far from faltering. In fact, the result in the first quarter has prompted multiple analysts to revise their forecasts upwards, with headline growth now at risk of overshooting the government’s target for the year. In addition, this may sway Taiwanese authorities at the Central Bank to follow the U.S. Federal Reserve on a slow but steady tightening cycle.
Author: David Ampudia, Economist