Consumption in Taiwan

Taiwan - Consumption

GDP growth records slowest increase since Q2 2020 in the first quarter, but remains fairly healthy nonetheless

GDP growth slowed markedly to 3.1% year-on-year in the first quarter, from 4.9% in the fourth quarter of last year. Q1's reading marked the worst result since Q2 2020, and was due to weaker consumption. However, investment and exports continued to rise at robust rates, likely boosted by the electronics sector. Moreover, a much less favorable base effect largely explained the GDP slowdown.

Private consumption rose at a softer rate of 0.2% year-on-year in Q1 compared to 1.6% growth in Q4, amid weakness in the transportation and recreation subsectors. Government spending contracted 0.5% (Q4 2021: +4.7% yoy). Meanwhile, investment was up 7.2% in Q1, down from the 14.7% increase recorded in the prior quarter, but still underpinned by strong machinery equipment, transportation equipment and construction investment.

On the external front, exports of goods and services grew 8.9% in Q1, down from 11.7% in Q4. Imports of goods and services growth ebbed to 8.9% from 15.5% in Q4.

On a seasonally-adjusted quarter-on-quarter basis, economic growth moderated to 1.6% in Q1, following the previous quarter's 1.8% increase.

Looking ahead, annual growth will likely continue at a robust pace in Q2, underpinned by the semiconductor sector. However, the surge in domestic Covid-19 cases is a risk: While the government has so far avoided new restrictions—and even loosened rules for arrivals in May—consumers could still exercise greater caution. Moreover, lockdowns in mainland China could disrupt supply chains and industrial output, given close linkages between Taiwan and China.

Ho Woei Chen, economist at United Overseas Bank, said:

“We are hesitant to upgrade our outlook for Taiwan this year despite the better-than-expected GDP in 1Q22 and the positive outlook for global semiconductor demand that will continue to support Taiwan’s export and investment. The worsening domestic COVID-19 outbreak will have a significantly larger impact on private consumption in 2Q22 while a high comparison base also limits the scope for outperformance in the GDP. We are maintaining our forecast for Taiwan’s GDP growth at 3.6% for 2022.”

The Consensus is for GDP to grow 3.3% in 2022, which is unchanged from last month’s forecast, and 3.0% in 2023.