Investment continues to shine in Taiwan as external headwinds take a breather

TAIPEI - While the global economy is experiencing headwinds and higher uncertainty, rays of optimism are appearing in Taiwan, where external factors have

been putting pressure on the economy for some time.  

Exports are being supported by American demand, and investment continues,d to surprise positively from domestic firms and foreign direct investment, according to a new assessment by Natixis.

The report says that, despite poor global trade data, the fall in export growth eased from -4.2% in Q1 2019 to -2.6% in Q2 2019, driven by ICT products.

In fact, Taiwan ended the seventh consecutive month of export decline and is one of the better performers in emerging Asia compared to major electronics manufacturers.

A key reason, the report says, is increasing diversification of exports, especially towards the US, which has helped buffer the slowdown of the Chinese economy.

Exports to the US grew 16% YoY in the quarter, and the share of US exports tin the total surged to 14%, the highest level since 2009.

"Consumption has also improved based on external factors," Natixis says.

"Tourist arrivals increased 19% YoY in Q2 2019, with all major markets recording positive growth, but the boost mainly came from Mainland China, growing 44% YoY in the quarter.

"Domestically, subsidies on energy- saving electrical appliances also helped lifting demand.

"While the more supportive environment for trade and retail sales could be temporary and highly dependent on external volatility, investment has continued to be a silver lining for growth."

More Taiwanese firms are bringing overseas operations home, dthe report says,  with an approved amount reaching NTD 497 billion or 3% of GDP.

"The overseas production ratio for ICT products is still elevated, but has continued its decline since Q3 2018, showing the shift to domestic production due to the

trade war.

"This is in line with the diversification process of Taiwan to reshore the supply chain and gain global exports orders, in particular from the US.

"In addition, approved foreign direct investments grew 14% year-to-date, with continuous emphasis on manufacturing and finance from

Japan and the US.

"The vacancy rate of commercial properties in Taipei city further fell from 4.2% in Q1 2019 to 3.6% in Q2 2019, showing higher office demand and a potential uptick in business sentiment.

"All in all, the Taiwanese economy has rebounded in Q2 2019 from the trough with 2.4% YoY. The key reasons are more exports to the US and more Chinese tourists on the external side (China has now put restrictions on Mainland tourists to Taiwan).

"In addition, investments - not only domestic but also FDI - continue to outperform.

"(But) notwithstanding the good news, external risks are likely to remain so we maintain our GDP forecast as 2.2%."   www.natixis.com (ATI).