Higher exports in Taiwan likely to contribute to upbeat economic growth in 2016

A recovery in global trade volumes is expected to contribute towards an upbeat economic growth in Taiwan this year, stretching it further into 2017 as well. However, growth in other components of the gross domestic product, like private consumption and government spending is expected to remain weak through the period.

Taiwan is a major exporter of electronics and IT products and these will contribute to the possible growth in the country, after a lag from Samsung’s flagship product, Galaxy Note 7, following a massive recall of the product on safety issues. On the other hand, global trade protectionism, post-election policy changes in the US, economic rebalancing and localization of supply chains in mainland China pose downward risks as well.

The government released its latest economic assessment report on November 25. According to the report, the economy will grow 1.35 percent in 2016, compared to 1.22 percent previously and 1.87 percent in 2017, against previous 1.88 percent. Higher growth will be chiefly contributed by exports (3.8 percent in 2017 compared to 1.5 percent in 2016), DBS reported.

Further, industrial production remained solid as of October (3.7 percent y/y, 1.6 percent m/m, on a seasonally adjusted basis), and PMI also stayed firmly above 50. For now, it would be premature to judge that electronics demand has passed the peak. But a slowdown will likely occur in 1Q17, given the past experiences that electronics up-cycle usually lasts for no more than two quarters.

"We concur that electronics exports are key for the growth outlook. The electronics-driven recovery, which kick started in early-3Q16, seems to have continued in the current quarter," the report said.