To download a copy please click Taiwan 2016 Q3 Economic Report

The world’s 22nd largest economy grew by 2.06% in the third quarter of 2016, the highest level for 18 months. Strong domestic consumption and investment were key drivers for growth. Average of leading forecasting institutions’ predictions is for a GDP rise of 1.09% in 2016.

Healthy growth came from traditionally strong manufacturing (4.9%) and ICT exports (12.3%) as well as the high-potential financial services sector, which has averaged 3.9% growth since 2015. Robust corporate earnings gave cause for optimism going forward but strong potential headwinds as trade liberalism faced potential rollback in the Asia Pacific region after US elections.

UK-Taiwan trade talks on 27 September saw progress: recognition of Scotch Whisky as a Geographical Indication and clearance for the resumption of UK live poultry exports to Taiwan. Taiwanese investment into the UK for the three months from July to September 2016 hit US$ 89.5 million, the first full set of figures since the UK’s referendum on membership of the EU on 23 June.


Macro Economy
1. According to preliminary official statistics released on 28 October, Taiwan’s Q3 GDP growth was 2.06% year-on-year (yoy), the highest in the last 18 months, up from 0.70% in Q2.

2. The Directorate of General of Budgets, Accounting and Statistics (DGBAS) attributed the growth to robust consumption and investment, respectively contributing 1.24% and 0.66% to GDP. Taiwan’s exports also grew by 3.57% in Q3 but were unable to offset a larger increase in imports of 5.14%, which led to a net trade deficit and drag down GDP by 0.35% (yoy).

3. The latest 2016 annual growth estimates by International analysts, think tanks, officials and banks have been revised up to 0.9% – 1.2%. (DGBAS: 1.22%; CIER: 1.03%; TIER: 1.17%; Yuanta-Polaris: 1.1%; IMF: 1.0%; “tandard and Poor’s: 0.9%; Global Insight: 1.2%).

4. Most key economic indicators give cause for modest optimism. The Purchasing Managers Index (PMI) was 54.5% in October, clear indication that manufacturing industries are expanding. The Consumer Price Index (CPI) increased by 0.33% (yoy) in September, partly due to the typhoon season that drove up food prices such for fruits and vegetables. The Central Bank kept interest rates at 1.375% in September.

5. The unemployment rate was 3.99% in September and the labour force reached 7.47 million in August, an increase of 54,000 (yoy), providing further impetus to domestic consumption. Wages increased by 0.2% in the three months to August to an average of £1,301 (NT$50,712) per month.

Sector Performance
6. Manufacturing recovered to grow by 4.9%. Likewise, transportation and storage sector grew by 3.1%, indicating increased real business activities in the quarter. Electricity consumption also increased by 4.1%. The construction sector declined by 2.7%.

7. Financial services continue to outperform the economy as a whole with Q3 growth of 4.4%. Average growth since 2015 has been 3.9%, with healthy growth being recorded even as the wider economy contracted. An increase in demand for life insurance cover and higher revenues from securities were the main drivers behind growth in Q3.

Trade Performance
8. Taiwan’s goods exports returned to growth in July and registered a moderate growth of 0.1% (yoy) in this quarter, ending a record of 17 straight months of decline. Exports of ICT products which grew by 12.3% were key for the bounce back, particularly when semiconductors exports, one of the key pillars of Taiwan’s economic competitiveness, roaring ahead with 18.2% growth.

9. The main destinations for Taiwan’s exports in Q3 were: mainland China (incl. Hong Kong) with 40.6%, ASEAN (excl. Cambodia, Myanmar, Laos and Brunei1) with 18.1%, the US with 12.0%, Europe with 9.2%, and Japan with 7.1%.

UK-Taiwan Bilateral Trade and Investment
10. Department for International Trade (DIT) Minister Rt. Hon. Greg Hands MP, visited Taipei for the UK-Taiwan trade talks on 27 September. On the Taiwanese side, the talks were hosted by Vice Minister for Economic Affairs, Wang Mei-Hua. The talks covered a wide range of bilateral trade issues including: financial services, pharmaceuticals, WTO trade liberalisation negotiations and bilateral co-operation in hi-tech manufacturing.

11. In advance of the talks, Minister Hands welcomed the recognition of Scotch Whisky as a Geographical Indication (GI) trademark and the decision on 23 September to grant the UK Highly Pathogenic Avian Influenza (HPAI) disease-free, thus allowing the resumption of UK live poultry exports to Taiwan.

12. The Minister was able to announce that food producer Han Dian would invest £10 million and create 100 jobs in a new UK manufacturing plant supplying Europe. And, after a call on the President of China Airlines, the company announced their plans to relaunch direct UK-Taiwan flights (once they get landing slots at Heathrow). And that China Airlines are taking delivery of the first of 14 Airbus A350s equipped with British Rolls Royce engines this year.

13. Rt. Hon. Greg Hands MP met President Tsai and key industry leaders, and gave a public speech to set out the UK’s economic strengths and commitment
to continue to think and act globally.

14. In the first full set of investment figures released after the UK’s referendum on membership of the EU on 23 June, Taiwanese investment to the UK between July and September 2016 hit US$89.5 million. While down from US$ 249.7 million over the same period last year, due a large one-off property purchase, it is too early to draw conclusions as to the impact of the EU referendum on the attitude of Taiwanese investors towards the UK.

Taiwan Political Economy
15. On 20 September, the Executive Yuan (equivalent to the cabinet) announced plans to upgrade the current Office for Trade Negotiation (OTN) sitting in the Ministry of Economic Affairs (ministerial level) to the EY (cabinet) level. Former MOEA Minister John Deng is now the Minister without Portfolio in charge of the new OTN as Taiwan’s chief trade negotiator. MOEA and MOFA vice ministers are incumbent deputy chief negotiators.

16. The upgraded OTN’s priorities include WTO plurilateral negotiations, application of the New Southbound Policy (an attempt to diversify beyond traditional markets) and preparations to enter the Trans-Pacific Partnership (TPP). However, following the victory of Donald Trump in the US Presidential elections on 8 November, the future of the TPP has been thrown into doubt and it is not yet clear what steps Taiwan can and will take to fill the potential resulting gap in its trade negotiation plans.

17. The World Economic Forum’s (WEF) 2016 Global Competitiveness Index2 ranked Taiwan 14th (from 15th in 2015) among the 138 economies listed. Key strengths were: innovation (ranked 11th), macroeconomic environment (13th), goods market efficiency (13th); state of cluster development (3rd), gross national savings (7th), extent of market dominance (5th) and intensity of local competition (6th).

Taiwan Corporate update
18. Foxconn, Taiwan’s largest company, saw its third quarter revenues rise to NT$ 1.075 trillion (£ 268 billion) yoy. Manufacturing devices for Apple is Foxconn’s single largest source of revenue but founder Terry Kuo is increasingly looking to diversify business operations into other high-tech fields ranging from telecommunications to robotics and e-commerce. Looking ahead, sales of the iPhone7, released in September, and the smooth intregration of Sharp, acquired for US$ 3.8 billion, into Foxconn’s operations will be key factors in determining whether this revenue growth can be sustained.

19. Facing competition from Samsung and Intel in the semiconductor fabrication business, Taiwan Semiconductor Manufacturing Company (TSMC) continued to lead the industry by initiating 10 nanometer product lines for the latest A10x processor (iPad Pro), ARM server chips, and as the exclusive manufacturer of A11 chip for the next generation iPhone. Estimated US$ 9.5 billion will be invested in R&D for this year. TSMC founder Morris Chang described the fabrication business as TSMC’s “Stalingrad” stating that TSMC will “fight relentlessly” against their main competitors, including Intel.

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

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