Taiwan

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Taiwan

Taiwan

Asia Pacific Economic Outlook, January 2013

The Taiwanese economy is recovering, albeit slowly. The export sector exceeded expectations in the last two months of 2012. However, consumer confidence slid to its lowest level in three years.

The Taiwanese economy is recovering, but it lacks momentum. The government expects GDP growth to exceed 3 percent in 2013 with the help of strong performance in the export sector. A better-than-expected export performance in November and December 2012 boosted confidence, but the Taiwanese economy remains vulnerable to the possibility of slackening external demand. Meanwhile, the index of leading economic indicators stood at 133.7 in November, up 0.8 percent from the previous month. The annualized six-month rate of change, which provides a more accurate forecast of economic conditions in the near term, increased 0.6 percentage points – its fourth consecutive monthly improvement. Among the indicators that make up the index, export orders, producer’s inventory for manufacturing, building permits, and average monthly overtime in industry and services recorded positive movements. While several economic indicators provide a favorable outlook for the economy in 2013, the recovery is expected to be relatively slow.

The index of industrial production posted a 5.9 percent increase in November 2012. The increase was supported by a surge in demand for electronic gadgets ahead of the holiday season. Manufacturing sector output rose nearly 5.5 percent, while mining and quarrying increased 13.8 percent. In addition, the Purchasing Managers Index (PMI) rose to its highest level in seven months in December 2012. The PMI increased to 51.3 percent after a reading of 49.6 in November. An expanding PMI indicates an improvement in manufacturing activity and augurs well for future growth. An improvement in manufacturing could also translate into a better performance in exports and domestic consumption in the coming months.

Despite an improvement in underlying economic indicators, Taiwan’s consumer confidence index fell to its lowest level in nearly three years. The index fell 1.1 points from the previous month to 71.1, recording its fourth consecutive monthly decline. The job opportunities sub-index showed the largest decline among all segments, dropping 3.2 points to 104.6. Meanwhile, Taiwan’s unemployment rate slid to a five-month low of 4.27 percent in November, providing some relief to a troubled job market. Furthermore, the outlook for job growth is positive with employers planning to step-up on recruitments in the first quarter of 2013. Weak business conditions led to muted wage growth in 2012, which weighed down domestic consumption. Average pay during the first 10 months of 2012 was down 0.1 percent compared to the previous year. After adjusting for inflation, real average pay declined over 2 percent.

The index of industrial production posted a 5.9 percent increase in November 2012. The increase was supported by a surge in demand for electronic gadgets ahead of the holiday season.

Taiwanese exports ended 2012 on a high note, allowing the country to compensate for depressed demand earlier in the year. Riding on increased demand for telecommunications products, Taiwan’s December exports rose 9 percent—well above market expectations. Export growth also exceeded expectations in November. Exports to China increased 10 percent in December, following a 3.7 percent increase in November. Furthermore, exports to Europe rose 11 percent, reversing months of contraction. However, shipments to the United States fell 1.3 percent after contracting 5.8 percent in the previous month. In 2012, Taiwan’s exports declined 2.3 percent, reversing a 12.3 percent expansion in the previous year. Shipments totaled $301.1 billion in 2012, down from $308.3 billion in the previous year. Yet, Taiwan’s export sector enters 2013 with renewed optimism and much-needed momentum. Talks on a Taiwan-Singapore free trade agreement are nearly complete and will likely yield positive results in the first half of the year. Taiwan is targeting export growth of 5.5 percent in 2013, and the government has pledged its support to local businesses to secure more orders. Overall, the outlook for the export sector is favorable.

The global economy is showing signs of stabilization. The recession in Europe has moderated, and the US economy is recovering. While downside risks remain, the Taiwanese economy is likely to perform better in 2013 compared to 2012.

Asia Pacific Economic Outlook, January 2013
Cover Image by Stephanie Dalton