The Directorate-General of Budget, Accounting and Statistics (DBGAS) on Friday lowered its GDP growth estimate for the April-to-June quarter to 1.48 percent on an annual basis, down from the 1.82 percent expansion it predicted in May, as two major GDP components — net exports and gross capital formation — continued to contract.
The statistics agency’s downward adjustment in its economic growth estimate was unsurprising, as recent data on economic activity showed that weak global demand and prolonged inventory adjustments have continued to weigh on Taiwan’s export-reliant economy, while a reduction in domestic investments in construction and machinery equipment also dragged.
While the second-quarter figure failed to meet the DGBAS’ May forecast, it still represented a return to positive territory from the 2.87 percent contraction registered in the first quarter. Moreover, the latest data indicated the economy also rebounded from a technical recession in the previous two quarters, underlining recovering growth momentum in the economy, albeit weaker than expected.
The DGBAS on Friday did not unveil its growth forecast for this year, but the agency is likely to lower its previous full-year forecast of 2.04 percent on Aug. 18 after more data are gathered and further analyses are performed. The general view among economists is that Taiwan’s economy would have difficulty growing 2 percent this year considering the doldrums and global external headwinds faced by local manufacturers, but GDP growth should be able to stay above 1 percent.
The central bank last month trimmed its projection for Taiwan’s GDP growth for this year from 2.21 percent to 1.72 percent. Several research institutes have also revised downward their estimates, with Academia Sinica and the Taiwan Institute of Economic Research last week cutting their numbers to 1.56 percent and 1.66 percent respectively, while the Chung-Hua Institution for Economic Research early this month lowered its prediction to 1.6 percent, and the Taiwan Research Institute last month projected growth of 1.45 percent.
A closer look at the DGBAS’ data shows that domestic demand led the economic recovery in the second quarter, with private consumption surging by 12.14 percent year-on-year, the best performance in 33 years. The stronger-than-expected domestic demand came as the economy continued to add jobs, services demand recovered further and the tourism sector remained vibrant. It is unusual that domestic demand in Taiwan could help offset the negative effects of slowing external demand so strongly, as seen in the second quarter.
On a positive note, the recovery in private consumption is expected to remain the main driver of Taiwan’s growth in the second half of the year, given the normalization of domestic activities and a resilient stock market, as well as the recovery in the labor market and stabilization in consumer inflation. More signs have surfaced of people’s growing confidence in stock investment, as central banks approach the end of their interest-rate-hike cycles in the next few quarters. If local stocks could secure continued improvement in fundamentals, it would further support private consumption.
There is still much uncertainty for domestic investment and external demand amid further inventory destocking and lingering geopolitical tensions.
However, exports tend to post a strong showing in the fourth quarter, as it is traditionally the peak season for consumption in Europe and the US, and at least the decline in global semiconductor sales appears to be bottoming, coupled with growing optimism about chips related to artificial intelligence devices. Even so, a degree of caution is warranted, and there is no room for complacency.
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