Taiwan: GDP records sharpest contraction since Q2 2009 in the first quarter
GDP declined at a steeper rate of 3.0% year on year in the first quarter, below the 0.4% contraction tallied in the fourth quarter of last year and far below market expectations. Q1’s reading marked the worst result since Q2 2009. Moreover, on a seasonally-adjusted quarter-on-quarter basis, economic activity contracted at a more pronounced pace of 1.6% in Q1, following the previous period’s 0.4% fall. Q1’s reading marked the sharpest downturn since Q2 2022.
Weaker investment and exports were behind the disappointing Q1 outturn, linked to a deterioration in global demand for electronics—the lifeblood of Taiwan’s economy. This contrasted strong consumption dynamics amid solid employment data and the reopening of borders.
Looking at domestic components, household spending increased 6.6% year on year in the first quarter, which was above the fourth quarter’s 3.2% expansion. Extra spending on transport, restaurants, hospitality and recreation drove the reading. Government spending growth moderated to 3.8% in Q1 (Q4 2022: +5.8% yoy), while gross capital formation contracted 4.2% (Q4 2022: -0.3% yoy).
Exports of goods and services slid at a quicker pace of 10.9% in Q1 (Q4 2022: -5.1% yoy). In addition, imports of goods and services declined at a steeper rate of 4.2% in Q1 (Q4 2022: -1.6% yoy).
On the outlook, ING’s Iris Pang said:
“We expect global demand for semiconductors for the rest of 2023 to be similar to 1Q23, if not worse. This is not helpful for the Taiwanese economy which specialises in semiconductor manufacturing and trade. We do not think the government’s investment policy to encourage Taiwanese manufacturers to invest in Taiwan will be effective in 2023 as demand for semiconductor chips is too weak. We, therefore, downgrade Taiwan’s GDP growth estimate to -0.3% for 2023 from 1.7% previously.”
United Overseas Bank’s Ho Woei Chen gave her take:
“The outlook for the electronics sector will hold the key to Taiwan’s economic rebound while private consumption is expected to improve steadily as a result of the normalisation in activities and traffic. This will be boosted by the fiscal support including its cash subsidy program. […] Taking into account the statistical effect, we expect the momentum in Taiwan’s economy to pick up over the next three quarters but the full-year GDP for 2023 is only likely to see marginal growth. We expect GDP growth to slow to around 0%-1.0% in 2023 (previous forecast at 1.8%).”