Taiwan’s economy seen slowing in 2023 as global demand weakens

TAIWAN’S economy likely grew last year at the weakest pace in four years as waning global demand hurt trade, with that slowdown likely to continue to weigh on the island in 2023.

Gross domestic product (GDP) is forecast to have expanded 2.9 per cent in 2022 from a year earlier, according to the median estimate in a Bloomberg survey of economists. That would be significantly weaker than 2021’s growth of more than 6.5 per cent and would be the slowest pace since 2018.

Taiwan is scheduled to release fourth-quarter and full-year GDP data on Wednesday (Jan 18) afternoon. Economists expect the economy to have expanded by 1.2 per cent in the October-to-December period.

“Headwinds are mounting for the Taiwanese economy, including a deteriorating external backdrop, down-cycle in the semiconductor industry, and a fading reopening impulse that had previously boosted domestic demand,” said Lloyd Chan, an economist at Oxford Economics.

Chan expects GDP growth to slow to 1 per cent in 2023, lower than the consensus estimate of a 2.2 per cent increase.

Through mid-2022 Taiwan enjoyed two years of stellar trade performance as global demand recovered from the initial pandemic outbreak in 2020 and sales of electronic goods soared. That ended in September, with exports falling in the final four months of the year.

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Officials have warned that overseas shipments would continue to struggle, and the official trade outlook is bearish through at least this current quarter, as weak demand and rising global inflation continuing to pose threats to Taiwan’s economy.

“Goods exports and private investment will likely deteriorate,” wrote Ma Tieying, an economist at DBS Group Holdings, in a December report.

However, there are some reasons for optimism. Taiwan’s exports of integrated circuit chips rose in 2022 for a seventh consecutive year, further solidifying the economy’s leadership status in the global semiconductor industry despite US-China tensions and diversifying supply chains. Barclays economist Bum Ki Son earlier this month called Taiwan “irreplaceable in the near-term” for the sector.

And DBS’s Ma cited Taiwan’s reopening post-Covid as a potential “important growth driver” in 2023, noting that the island has begun allowing more foreign visitors at a pace that is almost on par with pre-Covid levels in 2019, after dropping all Covid restrictions, including quarantine for arrivals, in October.

Attention will also be on Taiwan’s central bank in a couple of months when policymakers consider whether to continue raising interest rates. The monetary authority last raised its policy rate in December — a move in line with expectations and one which economists said could be the final hike given a slowdown in inflation and soft growth in 2023. The bank’s board is next scheduled to meet in March. BLOOMBERG