Taiwan’s GDP likely to expand 2% in 2016, 3% in 2017

Taiwan's Q4 GDP shrank 0.28% y/y, on par with Barclays' forecast of -0.2% but above consensus expectations of -0.6%. On a quarterly seasonally adjusted basis, the Taiwanese economy expanded 0.79%, as compared with two consecutive quarters of contraction in Q3 and Q2. The economy expanded 0.85% y/y for the whole of 2015, as compared with Barclays forecast of 0.9% growth.

Net exports of Taiwan contributed negatively to the overall y/y growth, subtracting 1.11pp amidst slower-than -anticipated inventory clearance and weak external demand. Private consumption positively contributed to growth, adding 0.86pp; however this was partially because of a low base in Q4 2014. The services activity has continued to remain fast; however, consumer confidence seems more fragile due to a slight downward movement from large discretionary spending to necessities.

Growth in Q1 2016 might be assisted by a low base year of 2015; however, a considerable pickup in momentum is not expected. The constant challenge of a weaker external demand is expected to hinder any rebound in the country's tech cycle. Gradual decline of labor market is another factor of worry. The market is expected to weigh more on private consumption.

"In the absence of any significant fiscal impulse during the government transition, we expect a weak growth profile in 2016. Given that we have turned more circumspect on the near term external outlook, we lower our 2016 and 2017 growth forecasts for Taiwan by 50bp and 30bp, respectively, to 2.0% y/y and 3.0% y/y", says Barclays.

In industry, manufacturing subtracted 1.43pp from Q4 growth. According to Barclays, growth in Q3 is expected to have bottomed out and is likely to grow moderately in 2016. The weakness in manufacturing has begun to spill over in the labor market. The December jobless rate reached 3.88%, the highest in 14 months. With the decline in the labor market that might lower domestic consumption more sharply in Q1 2016, and along with the expected outlook of subdued inflation in 2016, the CBC is expected to lower its policy rate by further 12.5bp in its March meeting.

"Moreover, we think the CBC is likely to maintain excess liquidity at a higher level of above TWD40bn/day in Q1 16 (Q1 15: TWD37.5bn/day)", says Barclays.