Taiwan’s Export-Dependent Economy Faces Slowest Growth in 8 Years, Tech Demand Softens
Taiwan, known for its export-driven economy, is expected to experience its slowest growth in eight years, according to the government’s statistics office. This year, the nation’s gross domestic product (GDP) is projected to only expand by 1.61%, down from the earlier forecast of 2.04%. The revision is attributed to soft demand for Taiwan’s technology products amidst global economic uncertainties.
The Directorate General of Budget, Accounting and Statistics revealed that exports are anticipated to decline by 9.51% in 2023 compared to the previous year. This is a significant adjustment from the previously predicted 7.27% slump. The agency’s head, Chu Tzer-ming, mentioned that chip foundries in the first quarter had a utilization rate of only about 60%. However, with a reduction in inventories, the hope is that the rate will increase and consequently boost exports. The growing demand for chips used in AI applications is expected to provide some support to Taiwan’s exports.
Home to prominent tech companies like TSMC, the world’s largest contract chip maker, Taiwan has been grappling with declining exports due to rising interest rates worldwide, triggered by escalating inflation and mounting US-China trade tensions. July marked the eleventh consecutive month of export decline in Taiwan, with weak demand from the US and China offset by the growing momentum in AI intelligence applications. The government anticipates a possible resumption of export growth starting September, albeit more likely in November.
Looking ahead to 2024, the statistics office provided its first forecast, predicting a GDP growth rate of 3.32%.
Despite these projections, some experts remain skeptical. Cathay United Bank’s chief economist, Lin Chi-chao, believes that the government’s optimism regarding this year’s forecast is unwarranted given the sluggishness in exports. Lin stated, There’s a danger the outlook could be revised down again, with pressure even to reach 1.5% growth this year. In line with this cautionary perspective, Fitch Ratings forecasted that Taiwan’s economy would grow by 2.8% next year, assuming a recovery in tech demand towards the end of 2023. However, Fitch Ratings highlighted that the Taiwanese economy remains vulnerable to a more profound global growth downturn.
The statistics office also revised Taiwan’s inflation outlook for 2023 to 2.14%, down from the previous forecast of 2.26%.
As Taiwan’s central bank prepares for its forthcoming quarterly rate-setting meeting on September 21, it faces the challenge of balancing its response to inflation and sluggish economic growth. In the previous meeting held in June, the bank refrained from taking any action.
In the second quarter, Taiwan’s GDP experienced a 1.36% year-on-year growth, slightly lower than the preliminary reading of 1.45% expansion. This represents a rebound after two consecutive quarters of contraction.
It is evident that Taiwan’s export-oriented economy is currently facing headwinds due to weakening demand for its technology products and various global factors. The outlook for the nation’s GDP growth remains uncertain, with experts cautioning against overly optimistic forecasts. The response of Taiwan’s central bank to the challenging economic landscape will be closely watched in the coming months.