Taiwan Government Consumption (ann. var. %)

GDP records sharpest contraction since Q3 2009 in the fourth quarter

GDP decreased 0.9% on an annual basis in Q4 (Q3: +4.0% year on year). Q4’s reading was the weakest since Q3 2009, and confounded market expectations for an expansion. The reading brought the expansion for 2022 as a whole to 2.4%, a marked slowdown from 2021’s 6.5% growth.

Household spending growth fell to 2.9% in Q4 (Q3: +7.0% yoy), amid a far less favorable base effect. Public spending, meanwhile, picked up to a 3.1% expansion in Q4 (Q3: +2.1% yoy). Gross capital formation flatlined (Q3: +0.3% yoy).

Exports of goods and services contracted 5.1% in Q4, (Q3: +2.8% yoy), a multi-year low. The contraction was due to Covid-19-related disruption in China and waning global tech demand. In addition, imports of goods and services deteriorated, contracting 1.6% in Q4 (Q3: +2.3% yoy).

On a seasonally-adjusted quarter-on-quarter basis, economic activity contracted 1.1% in Q4, contrasting the previous period’s 1.8% growth.

The Consensus is for the economy to return to growth in Q1, although risks are to the downside in light of the far-weaker-than-expected Q4 reading and weakness in external demand. The speed of China’s economy recovery from the current wave of Covid-19 cases will be key; China accounts for over a quarter of Taiwanese goods exports. Solid private consumption and a recovery in tourist arrivals following the easing of travel restrictions should provide some support to activity in Q1.

On the outlook, United Overseas Bank’s Ho Woei Chen said:

“The downturn in external demand including semiconductors, is likely to continue this quarter and given Taiwan’s significant exposure, there is now a risk of a technical recession in 1Q23. That said, we see further improvement in private consumption this year and this will remain the main driver of Taiwan’s economy as domestic demand and international travel continue to recover.”