Taiwan economy likely to maintain robust economic growth in 2017, U.S. trade protectionism a headwind

Taiwan economy is expected to maintain its robust economic growth this year following stronger exports, investments and private consumption. On the contrary, the United States trade protectionism, China’s economic rebalancing and domestic policy uncertainties will remain a headwind for the GDP growth in the near-future.

Taiwan gross domestic product (GDP) expanded 2.6 percent y/y in the last quarter of 2016, registering a faster pace of growth than the previous 2.03 percent in the third quarter of 2016, but falling short of the consensus forecast of 3.10 percent, according to the National Statistics Taiwan preliminary data.

Individually, the country’s exports and investments resisted a strong growth of 8.2 percent, while private consumption growth subdued to 1.3 percent, down from prior 2.5 percent. The main reason for missing GDP growth forecast was due to a surge in the country's imports, which climbed 9.4 percent further reducing net exports contribution to GDP.

“We maintain our forecast that GDP growth will rise to 2.1% in 2017, up from 1.4 percent in 2016. A low first-half and high second-half are embedded in our forecast. Manufacturing PMI appears to have peaked in December 2016 and export orders have shown signs of moderation, which suggests that growth momentum will ease in the first quarter of 2017,” said DBS Group Research.

The DBS Bank in its research note mentioned that a reacceleration remains likely for second-half of 2017 as the peak season for electronics kicks in. From a fundamental perspective, a cyclical recovery in the global economy and further innovation in the tech sector will be the tailwinds this year.

Lastly, headwinds will come from the United States trade protectionism, China’s economic rebalancing and domestic policy uncertainties (e.g., pension reforms, tax reforms) Our GDP forecast trajectory implies that the output gap will remain negative and the excess capacity will linger over the next four quarters. Core inflation should remain muted through this year, which allows the central bank to keep interest rates unchanged.