Taiwan 4Q16 GDP likely to accelerate 3.2 pct on recovery in global demand

Taiwan gross domestic product (GDP) for the last-quarter of 2016 will be released on Wednesday, January 25. We expect it to accelerate to 3.2 percent y/y, up from 2.0 percent in the third-quarter of 2016 on recovery in global demand for electronics.

Industrial production also picked up notably to 6.1 percent y/y in the October-November period from 3.9 percent in July-September. If December production, which is due Monday hits the 7 percent mark as expected, it will strengthen the case of 3 percent GDP growth in the last-quarter of 2016. Domestic consumption still appeared weak last quarter. The rise in supply-side food price inflation eroded household real incomes. Consumer confidence also slipped amid the debates over the government’s new workweek rules and pension reform proposals, reported DBS Group Research.

The leading indicators suggest that GDP growth will come off the peak but remain on trend in the first-quarter of 2017. Export orders, for instance, have eased to 6.3 percent in December, down from 7.0 percent in November, which points to cooler demand at the start of 2017. It remains likely that growth momentum will reaccelerate in the second half of 2017 as a new round of seasonal demand for electronics will kick in. Looking through the year, a cyclical recovery in the global economy and further innovation in the tech sector will be the tailwinds for Taiwan, they added.

The DBS bank in its research note mentioned that the headwinds, on the other hand, will mainly come from the US’s trade protectionism and China’s economic rebalancing. For the whole year, we project 1.5 percent growth for 2016 and 2.1 percent for 2017. The government is likely to revise the 2017 growth estimate following this week’s GDP data announcement, lifting it above 2 percent from 1.87 percent currently. We will also review our forecast later this week based on more data details.