To download a copy please click Taiwan 2016 Q2 Economic Report

After three quarters of recession, Taiwan’s GDP in Q2 recovered somewhat to a moderate growth of 0.69%, with a mixed picture of return to trade surplus, continued consumption growth and lack of investment. Annual forecasts for 2016 have been revised down to 0.5%-1.1% growth.

Although goods exports registered a further decline by 6.2%, there were signs of recovery towards the end of Q2 as exports of electronic parts and semiconductors started to grow. Solid performance in the financial sector is evident, which was the only one to grow continuously throughout the last quarters of recession. Apple Inc. now has plans to issue their corporate bonds in Taiwan for the first time, seeking access to Taiwan’s rich capital pool and a stronger supply chain relationship.

UK-Taiwan bilateral figures remain robust. Taiwan remained the Scotch whisky industry’s 4th largest export market globally and 3rd largest by value for single malt.

Macro Economy
1. According to official statistics released on 29 July, Taiwan’s economy recovered from three consecutive
quarters of recession. Q2 GDP grew by 0.69% year-on-year (yoy), up from a 0.68% contraction in Q1 2016.

2. The Directorate General of Budgets, Accounting and Statistics (DGBAS) attributed the growth to the reappearance of a trade surplus–with strong services exports contributing 0.6% to GDP and the continued growth of consumption contributing 0.53%. Nonetheless, domestic investments declined by 3.11% and dragged down GDP by 0.72%, resulting in weak overall growth in Q2.

3. The latest 2016 annual growth estimates by analysts, think tanks, officials and banks now revised down to between 0.5% and 1.1%. (DGBAS: 1.06%; CIER: 0.84%; TIER: 0.77%; Yuanta-Polaris: 0.90%; CitiBank: 1.0%; Moody’s: 0.7%; ADB: 1.1%).

4. Other market indicators provide optimism, suggesting that Taiwan will be able to resume its track of growth in the long run. The consumer price index (CPI) increased by 0.90% (yoy) in June, attributed to a slight rise in retail and electricity prices. The policy rate was again lowered by the Central Bank to 1.375% on 30 June, which is perceived as a move intended to help inject further capital into the market for investments.

5. The unemployment rate was 3.92% in June, and has therefore remained within the administration’s 4% target since August 2014. The labour force reached 7.42 million in May, providing further impetus to domestic consumption, and contributed to the improved economic performance. Wages increased by 1.6% in the three months to May to an average of £1,300 (NT$53,626) per month.

Sector Performance
6. Due to seasonal peaks, electricity consumption increased by 18.5% in Q2. The recovery of the economy is further seen in the transportation and storage sector with a 2.2% increase, up from a 2.5% decline last quarter – a tangible indicator that business activities and manufacturing resumed.

7. Most positive was the financial sector. With growth of 1.60% in Q2, it remained solid and has been the only sector to grow continuously throughout the last quarters of recession.

8. No sector performed particularly badly (sectors in the negative territory are in the range between 0-1% decline), indicating the momentum of growth may return. In particular, manufacturing declined only 0.1%, its best performance in the last five quarters; retail declined by 0.8%.

Trade Performance
9. In spite of strong services exports, Taiwan’s goods exports declined again in Q2 by 6.2% (yoy) to a total of US$ 68.7 billion (£52.9 billion), better than Q1’s 12.1% (yoy) slump but still a record 17th straight month of decline.

10. Reasons for such a decline remain unchanged, including the global slowdown of trade, oversupply of manufacturing goods, the substitution effect of China’s supply chain and its structural rebalancing, and the falling price of raw materials. To a certain extent, Taiwan’s export performance in the past quarters reflects the global trade challenge described in the recent IMF report on “China and Asia in Global Trade Slowdown”.

11. Signs of recovery were evident towards the end of Q2. Overstocking of manufactured goods has been gradually digested and diminished in the past quarters. For example, exports of electronic parts started to grow (by 1.9% in Q2). Likewise, with exports of semiconductors growing by 11.5%, goods exports in June declined by only 2.1%, making it the lowest since February 2015.

12. The main destinations for Taiwan’s exports in Q2 were: mainland China (incl. Hong Kong) with 38.3%, ASEAN (excl. Cambodia, Myanmar, Laos and Brunei1) with 18.5%, the US with 12.2%, Europe with 9.9%, and Japan with 7.1%.

Political Economy
13. The Lord Mayor of London visited Taiwan from 10-12 July, attracting considerable media interest and providing timely reassurance about the fundamental strengths of the UK economy following the EU referendum.

14. A key theme of the visit was FinTech, which featured in his high level calls including with President Tsai, Financial Supervisory Commission (FSC) Deputy Chairman Kuei, and Central Bank Deputy Governor Yang. President Tsai acknowledged that the development of and innovation in financial services in Taiwan is lagging behind other major economies and welcomed further cooperation with the UK including on FinTech and RMB. Regulators (the FSC and Central Bank) were open-minded about FinTech opportunities, particularly e-payments, big data analytics and crowd funding, and also addressed the importance of online financial security. FinTech business seminars during the visit attracted sell-out attendance.

15. Possible financial market turmoil was avoided recently. In the first weekend of July more than NT$83 million (£1.9 million) cash was stolen from the Automated Teller Machines (ATMs) operated by First Commercial Bank, one of the major banks in Taiwan. More than a dozen thieves from Russia, Moldova, Latvia, Estonia and Romania used offline technology (virus) installed into ATMs to dispense cash without records. An off-duty police detective discovered and caught the main suspect the following week. Most of
the cash was found before it could be laundered abroad.

16. The first-ever large-scale industrial strike by the flight attendants union of Taiwan’s (State-owned) China Airlines occurred at the end of June. It sparked a debate on the labour rules on overtime working. Perceived as one of the earliest challenges for the new government, the strike was finally settled by appointing a new management board and accepting the union’s demand for better working conditions.

17. In mid-June, Apple Inc. submitted their application to the US Securities and Exchange Commission (SEC) to issue dollar-denominated bonds in Taiwan for the first time. The 30-year bonds would provide 3.15-3.20% yields and aim to raise a total of US$ 1 billion. This issuance reaffirms Apple’s partnership with Taiwanese suppliers, particularly Foxconn and Taiwan Semiconductor Manufacturing Company (TSMC), and potentially extends their business relationship with possible bond subscribers of local financial
holding groups and insurance funds.

UK-Taiwan Bilateral Trade and Investment
18. Latest figures from HMRC show that a total of £435.8 million worth of British goods was exported to Taiwan by the end of May 2016, down from £533.4 million over the same period last year (but up from £418.9 million in 2014). The near £100 million reduction came mainly from the export slump of crude oil from £88.2m in 2015 to only £2.3 million in 2016. All other key export sectors to Taiwan remain solid. For example, Taiwan is still the 4th largest export market overall for the Scotch whisky industry and 3rd by
value for single malt.

Ta-Ching Shih Ph.D.
Senior Economic Officer
+ 886 2 8758 2051

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