Taiwan: Taiwan exits technical recession in Q2
July 29, 2016
In the second quarter of 2016, GDP expanded 0.7% over the same period of the previous year, according to preliminary data released by the Directorate General of Budget Accounting and Statistics (DGBAS) on 29 July. The reading overshot market expectations of a 0.6% expansion and contrasted the 0.7% contraction tallied in the first quarter.
Q2’s upturn came on the back of an improvement in the external sector which more than offset a moderation in the domestic economy. Exports of Taiwanese goods and services swung from a sharp 4.1% contraction in Q1 to a 0.7% expansion in Q2, marking the first expansion in exports since Q1 2015. The rebound was driven by stronger demand for Taiwanese semiconductors in China. Imports expanded 0.1% in the second quarter, which contrasted the 1.1% decline seen in the first quarter. As the expansion of exports outpaced imports, the contribution of the external sector to economic growth improved from minus 2.3 percentage points to plus 0.4 percentage points.
On the domestic side of the economy, growth in private consumption moderated from 2.2% in Q1 to a modest 1.1% in Q2. The slowdown was driven by a decrease in consumption of food and non-alcoholic beverages. The contraction in real gross capital formationsharpened from 2.2% in the January to March period to 3.1%. The faster decline was driven by declining investments in transport equipment and construction. Meanwhile, growth in government consumption dropped to 2.0% in Q2 (Q1: +5.1% year-on-year). Overall, growth in domestic demand eased from 1.6% in the first quarter to a modest 0.2% rise in the second quarter.
Despite the encouraging reading, the Taiwanese economy faces numerous challenges in the wake of the Brexit vote. Prospects of slower global economic growth, particularly in Taiwan’s main trading partners, could weigh down on demand for Taiwanese goods and undermine a potential export-led recovery.