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Q2 2017 ECONOMIC REPORT

TAIWAN ECONOMY: 2017 Q2
To download a copy please click here: Taiwan 2017 Q2 Economic Report

SUMMARY
Increasing consumption, investment and a growing trade surplus saw Taiwan’s economy maintain its momentum by registering GDP growth of 2.13% in Q2. Industrial production has expanded for 16 consecutive months and hit a monthly record high in the period. With the release of latest suite of Apple products including new iPhone models, Taiwan’s Apple supply chain are set to propel the economy further forward over the remainder of the year. Official estimates for growth in 2017 and 2018 were revised upwards to 2.11% and to 2.27% respectively.
A major power failure on 15 August led to the resignation of the Minister for Economic Affairs. On 4 September, Tainan Mayor William Lai replaced Lin Chuan as the new Premier in a move that saw a new Minister of Economic Affairs, Jong-Chin Shen, and a new Chair of the Financial Services Commission, Wellington L. Koo, take office. The new Cabinet’s priorities for the economy will include: execution of the “5+2” innovative industries program; infrastructure investment; ensuring stable power supply; as well as labour market reform.
The budget allocation for the Forward-looking Infrastructure Plan was been confirmed in August. Approximately NT$ 108.92 billion (£2.7 billion) will be allocated before the end of 2018.

Macro Economy
1. According to statistics released by Directorate-General of Budget, Accountings and Statistics (DGBAS) on 18 August, Taiwan’s Q2 GDP growth was 2.13% year-on-year (yoy), down from 2.60% in Q1 2017. Taiwan’s GDP of Q3 and Q4 is predicted grow by 1.89% and 1.8% respectively.

2. Growth was attributed to consumption and increased investment – especially in the semiconductor and LCD panel sectors which saw manufacturing grow by 3.86% (yoy), contributing 1.16% to this quarter’s GDP growth. Taiwan’s exports and imports also grew by 4.96% and 4.43% respectively in Q2, leading to a trade surplus contributing 0.9% (yoy) to GDP growth. As a result of a significant increase in exports, the wholesale and retail trade sectors also expanded by 0.47% in Q2.

3. The latest 2017 annual growth estimates for Taiwan by international analysts, think tanks, officials and banks have generally been slightly raised. (DGBAS: 2.05%→2.11%; CIER: 2.11%→2.14%; TIER: 2.04%→2.08; Yuanta-Polaris: 2.1%; Cathay Bank: 2.1%; DBS Bank: 2.5%; Standard and Poor’s: 2.0%; Global Insight: 2.1%).

4. Most key economic indicators provide reasons for modest optimism about the prospects for Taiwan’s economy over the coming months. The Consumer Price Index (CPI) increased by 0.96% (yoy) in August, well within the government’s 2% inflation target. The Central Bank has kept the base interest rate at 1.375% since June.

5. The unemployment rate in July was 3.84%, and went up to 3.89% in August. It was still within the government’s 4% target as it has been for the last three years. DGBAS attributed the increase in unemployment rate to new graduates entering the market on completion of their studies. In Q2, the labor force reached 7.54 million and the average monthly wage was NT$ 44,746 (£1,120). Both had a small increase compared to Q1.

Sector Performance 
6. The Ministry of Economic Affairs announced in September that industrial production grew for a 16th consecutive month and recorded a monthly record high. With the steady export orders for advanced semiconductor products, strong demand for LCD panels and growing capacity resulting from automated production; the manufacturing sector continued to drive Taiwan’s economy forward. DBS Bank predicted that Taiwan’s GDP growth in 2017 will top 2% because the release of new suite of Apple products will drive up demand for the products from Taiwan’s Apple supply chain. For example, three Taiwanese companies – Foxconn, Pegatron and Wistron – manufacture the current iPhone models for Apple. Taiwan Semiconductor Manufacturing Company provides A11 smart processor in the iPhone8, iPhone8 Plus and iPhone X while another Taiwanese firm, Largan, is the main camera lens supplier.

7. The performance of other important sectors of the economy was also encouraging: wholesale and retail grew by 2.95%; transportation and warehousing grew by 3.20%; and financial services had 0.68% growth in Q2.

Trade Performance
8. In the first half of 2017, the exports and import respectively grew by 12.5% and 16.5%, thanks to the global recovery and the growing exports of main goods, such as metals & metal products, information & communication products, and electronic parts (respectively accounting for 9.3%, 10.8%, and 32.6% of overall exports). The value of all main export goods registered double-digit growth in the first two quarters. The half-year export value of electronic parts and machinery was $48.1 billion USD and $11.8 billion USD. Both were record highs.

9. The Q2 export growth in goods saw: electrical machinery and equipment exports grow by 12.04%; machinery including computers grow by 16.66%; plastics and plastic articles grow by 11.96%; iron and steel grow by 20.832%; and optical, technical, and medical apparatus grow by 9.63%.

10. The main destinations for Taiwan’s exports in Q1 and Q2 were: mainland China (incl. Hong Kong) with 39.8%, ASEAN with 18.8%, the US with 11.8%, Europe with 9.4%, and Japan with 6.6%. The value of exports to ASEAN grew by 23.4% (yoy).

Taiwan Political Economy 
11. On 15 August, an operational error at Taoyuan’s Datan Power Plant caused a sudden 12% drop in Taiwan’s power supply led to a blackout that caused disruptions across Taiwan, including in Taipei. This compounded the problems caused by damage to the largest power plant in eastern Taiwan by Typhoon Nesat, which passed through on 29 July. The blackout led to the resignation of the-then Economics Minister Lee Chih-kung and raised public concern about whether the Democratic Progressive Party administration will be able to fulfill the campaign promise of a ‘Nuclear-free Homeland’ by 2025. Nuclear energy accounted for 12% of the power supply in 2016.

12. Additionally, two Executive Yuan level investigations where set up following the 15 August blackout. Minister without Portfolio Wu Hong-mo was tasked to lead and investigate into the incident including though related to: system design, operating procedures, and operational management. Minister without Portfolio Wu Tsung-Tsong was asked to begin a comprehensive examination into: the safety of Taiwan’s concentrated power supply structure; the stability of the entire electricity grid; and ways of making the system tougher, more reliable, and more disaster resistant.

13. Premier Lin Chuan announced his resignation on 4 September and Tainan Mayor William Lai became the new Premier. The new chairman of Financial Supervisory Commission (FSC), Wellington L. Koo, previously the president of Taipei Bar Association and the Taiwan Bar Association, is expected to accelerate regulatory reforms in the financial services sector. In a speech to mark the listing of China Petroleum Corporation’s Green Bond listing ceremony on 19 September, he indicated cross-ministerial work is underway to facilitate green investment. In the inaugural address of Jong-Chin Shen, the new Minister of Economic Affairs, he emphasized the importance of stable power supply, execution of the Forward-looking Infrastructure Plan and industrial transformation as key priorities.

14. The original NT$ 890 billion (£22 billion) “Forward-looking Infrastructure Plan” has been reduced NT$ 420 billion (£10.41 billion) with the original eight-year execution period reduced to just a two-year period. Approximately NT$ 108.92 billion (£2.7 billion) will be executed in the first year of the project.

15. According to the special budgetary bill, the special budget of the first year was allocated as follows: green energy development received NT$ 8,124 million (£201 million); digital development received NT$ 16,170 million (£400.8 million); water environment development was allocated NT$ 25,670 million (£636.3 million); rail development received NT$ 17,069 million (£423 million); and local county infrastructure received NT$ 35,414 million (£877.8 million).

Mandeep Singh Gill
Head of Economic and Prosperity Section
British Office Taipei
Tel: +886 2 8758 2081
Email: mandeep.singh-gill@fco.gov.uk

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