Taiwan: All eyes on domestic demand as exports weaken

TAIPEI - The external tailwind for Taiwan's economic growth is fading, with exports decelerating to 3.1% YoY in Q3 2018, a big fall from 11.2% last quarter. In addition, imports are increasing as Taiwanese companies push for investment, especially in machinery.

"Therefore, the net trade components could turn negative for GDP growth," says a research report from French banking group Natixis.

"Fortunately, domestic demand is helping. Investment is benefitting from a favourable base effect as its performance in H2 2017 was the worst in recent years.

"The surge of machinery imports at 21% YoY, notably from the US and Japan, is a sign of stronger fixed asset investment. (And) inward foreign direct investment (as shown in approved FDI) has increased 38% YoY YTD especially in the semiconductor industry.

"Beyond investment, consumption remains stable supported by higher government spending.

Natixis points out that Taiwan's equity market was down 12% to 9,516 from the end of June, in line with global developments driven by tech stocks.

Natixis nevertheless expects Taiwan to grow 3.0% in Q3 2018 on the basis of a favourable base effect for investment and higher fiscal spending ahead of upcoming local elections in November.

"Beyond trade, downside risk comes from the impact that prolonged sluggish wage growth could have on private consumption in the future."www.natixis.com(ATI).