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18/02/2011 | Taiwan Ends 2010 with Fastest GDP Growth in 24 Years

Global Insight Staff

Taiwan's economy staged a strong performance in the fourth quarter of 2010, higher than the preliminary figure, as all drivers continued to steam ahead.

 

IHS Global Insight Perspective

Significance: GDP in real terms rose 6.9% on the year in the three months through December, after climbing by a revised 10.7% in the previous quarter. In seasonally adjusted terms, the economy grew by a virtually flat rate of 0.01% (annualised), slowing from the revised growth of 3.2% in the previous quarter. For 2010 as a whole, real GDP growth came in at 10.8%, marking the strongest reading in 24 years.

Implications: Taiwan's economy continued to thrive on both foreign and domestic demand. Global demand in the key high-tech sector further bolstered exports, while abundant liquidity and buoyant sentiment continued to underpin domestic spending.

Outlook:The economy's expansion is carrying on, although moderation in growth, as seen in previous quarters, will continue in quarters ahead on the back of unfavourable base effects and external uncertainty. IHS Global Insight expects the economy to grow 4.9% for 2011.

Upward Revision from Preliminary Figures

Taiwan has reported a faster-than-expected expansion in the economy for the fourth quarter of 2010, according to final data released yesterday by the Directorate General of Budget, Accounting, and Statistics. The results show that the economy continued to expand at a healthy rate as strong high-tech demand ahead of the holiday season powered export growth, while strengthening economic activities, higher earnings, and an improving labour market helped boost business and consumer sentiment. Nevertheless, moderation in momentum has continued since reaching the strongest level of growth in more than three decades in the first quarter. GDP in real terms rose 6.9% year-on-year (y/y) in the three months through December, higher than the preliminary estimate for 6.5% announced at end-January, and the fifth straight quarter of expansion since the island came out of the recession. This represented a slowdown, however, from the revised 10.7% expansion posted in the previous quarter. In seasonally adjusted terms, the economy barely moved, with a mere 0.01% quarter-on-quarter (q/q, annualised rate) gain recorded in the December quarter, easing from a revised 3.2% increase in the previous quarter. It marked the lowest gain in seven quarters. For 2010 as a whole, the economy rose 10.8%, representing the fastest growth since 1986.

Demand for High-Tech Products Continues to Boost Exports

Exports have remained at the driver's seat leading the island's impressive recovery, as global appetite for high-tech products has stayed robust. In particular, sales to the United States and China have remained surprisingly strong, thanks to demand ahead and during the holiday seasons. Exports of goods and services edged up 14.9% y/y during the three months through December, following a 20.5% jump in the previous quarter. In q/q annualised terms, total exports rose 5.4%, accelerating from a mere 0.32% gain recorded in the previous quarter. Exports have been fuelled by demand from the neighbouring economies, as China's strong revival has been propelling regional trade flows. The island has particularly benefitted from this trend as warmer relations with China have helped to lift bilateral business activities, while the relaxation of tourism restrictions also prompted the influx of mainland visitors. In addition, despite still-lagging consumption, high-tech demand from the advanced economies, particularly the United States, has been rebounding at a stronger-than-expected pace. That said, export growth has moderated since the second quarter as the base effect turned less favourable. Meanwhile, imports rose 14.4% y/y in the December quarter, slowing from the 22.3% surge seen in the previous quarter. The continued expansion in imports reflects improving domestic demand, fuelled especially by demand for capital goods. Net exports contributed 2.6 percentage points to GDP growth in the December quarter, up from 1.9 percentage points in the previous quarter.

Domestic Demand Stays Buoyant

The impetus generated by external demand has continued to encourage domestic drivers to steam ahead. Business spending, though moderated, maintained double-digit growth during the three months through December, as still-brisk export orders, in particular for high-tech products, have prompted companies to expand production capacity. Total gross fixed-capital formation rose 13% y/y in the December quarter, after jumping 24.6% in the previous quarter. Private investment continued to provide the key impetus, up 17.8%, although it slowed sharply from the 35.6% surge in the previous quarter. Orders outsourced from the world's leading high-tech companies have prompted Taiwanese companies to expand production and spending. In addition, abundant liquidity and warming cross-Strait relations have also contributed to the increase in business spending. However, momentum was somewhat shed by higher uncertainty and a less favourable base effect. Meanwhile, investment by the government and public enterprises rose in the December quarter by 6.9% and 1.5%, respectively, reversing the 5.7% and 0.46% contraction in the previous quarter. Concurrently, the labour market has continued to improve noticeably as business has stepped up on hiring. Along with ample liquidity and strengthening economic prospects, these have buoyed consumer confidence and spending. Private consumption rose 2.9% y/y in the December quarter, although it moderated from the revised 4.6% expansion in the previous quarter.

Outlook and Implications

Final GDP figures confirm with the latest string of data that the island finished 2010 with stronger-than-expected momentum. The results bode well for the economy as the pace should be carried through into 2011, although the economy's momentum has been moderating despite still strong growth rates, with further tempering in growth still expected during the year. This is more evident in the seasonally adjusted annualised rates. Being one of the worst affected economies during the global economic crisis, the economy's strong recovery has been partly inflated by the low comparison base in the corresponding period a year earlier. With the favourable base effects turning unfavourable, it will serve as the restraining factor on growth rate ahead. Concurrently, the economy's strong performance is clear evidence of the island's heavy reliance on external demand, in particular of the fast-growing importance of the Chinese market. With China's policy adjustment raising concerns that it might take a toll on its economic growth and demand, the island's exports are unlikely to repeat the strong performance seen in 2010. In addition, higher inflationary pressure across the region raises the risks for regional trade flows, as policymakers attempt to tackle the problem with tighter monetary policy. While the strength of the New Taiwan dollar is threatening the island's export competitiveness, the unresolved concerns over the European sovereign debt woes have continued to weigh on the world economic outlook. On balance, IHS Global Insight projects the economy to grow by 4.9% in 2011.

Global Insight (Reino Unido)

 


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