GDP in Taiwan

Taiwan - GDP

GDP growth loses steam in Q2 amid domestic Covid-19 outbreak

GDP growth lost steam, falling to 7.5% year-on-year in the second quarter, from 8.9% in the first quarter. While the external sector and investment remained buoyant amid a red-hot electronics sector, the domestic economy lost notable momentum, amid the imposition of restrictions to curb the outbreak of Covid-19 cases.

Household spending shrank 0.4% year-on-year in Q2, compared to a 2.1% expansion in Q1. Government consumption grew 2.4% (Q1: +4.3% yoy), while gross capital formation was up 8.6% (Q1: +9.1% yoy), supported by strong investment in machinery, transport equipment and construction.

Exports of goods and services increased 22.9% on an annual basis in the second quarter, which was above the first quarter's 21.3% expansion. In addition, imports of goods and services growth expanded 17.7% in Q2 (Q1: +15.5% yoy).

On a seasonally-adjusted quarter-on-quarter basis, GDP dropped 2.0% in Q2, contrasting the previous period's 3.0% increase. Q2's reading marked the sharpest decrease since Q3 2008.

Looking ahead, annual growth will likely slow notably in Q3 on a less favorable base effect. However, underlying momentum should improve, given that domestic Covid-19 cases have plummeted and restrictions have been eased since July. Moreover, the government’s “Stimulus 4.0” package should support spending, and the semiconductor sector should remain robust. That said, a resurgence in cases—especially given the low vaccination rate—is a key risk.

Ho Woei Chen, economist at United Overseas Bank, was upbeat about the outlook:

“With Q2 21 GDP growth in line with our forecast and Taiwan resuming normal economic activities while the external outlook remains positive, we maintain our full-year 2021 GDP growth forecast at 5.9%.”

Our panelists see GDP growing 5.7% in 2021, which is up 0.1 percentage points from last month’s estimate, and 3.0% in 2022.