US’, China’s economic woes point to end of Taiwan’s chip-led boom

TAIWAN’s trade-reliant economy is coming back down to Earth after a banner year for growth as its biggest export markets slow and global demand for electronics and semiconductors starts to wane.

Economists expect gross domestic product grew 3.15 per cent in the second quarter from a year ago.

That would be slightly better than the 3.14 per cent expansion from the January-to-March period, but well below the numbers recorded in 2021.

Taiwan reports its latest GDP data on Friday. 

“Taiwan was in an enviable position during the global Covid shock, but higher inflation and weaker demand worldwide are now faltering its growth prospects,” said Gary Ng, senior economist at Natixis SA.

“The once-booming semiconductor industry will also face downside risks as consumers turn cautious.”

China and the US are Taiwan’s two largest export markets, which combined account for just over half of the island’s overseas shipments.

An economic slowdown in the US has sparked recession talk as officials struggle to rein in the highest inflation in 40 years without cratering the economy.

The Chinese economy, meanwhile, has been weighed down by ongoing Covid-19 outbreaks and resulting regional lockdowns, leading economists to downgrade their forecasts for growth in 2022 to 3.9 per cent in a recent Bloomberg survey.

SEE ALSO

China's slowdown spills over to major economies through imports

Malaysia’s semiconductor firms continue to expand capacity amid inventory correction

Intel posts 22% quarterly sales decline, slashes forecast

Chips are down

Global demand for semiconductors kicked off a surge in factory expansion in Taiwan in 2021.

Private sector fixed capital investment rose 19.9 per cent last year to be the largest single contributor to the 6.57 per cent growth in GDP.

In the first quarter of this year, though, the pace of investment slowed to 6.6 per cent. 

Gartner is predicting an abrupt end to one of the chip industry’s biggest boom cycles.

The research firm sees global sales slowing much more rapidly than previously forecast, slashing its outlook for semiconductor revenue growth to just 7.4 per cent in 2022, down from the 14 per cent it predicted three months ago.

Sales will likely decline 2.5 per cent next year, the company said in a report published Wednesday. 

Taiwan Semiconductor Manufacturing’s most recent outlook suggests firms are weighing the uncertainty.

While the world’s largest contract chipmaker raised its 2022 revenue forecast earlier this month, it also said it plans to delay some capital spending by as much as 9 per cent from its earlier guidance.

Factory data in Taiwan underscores the concerns about the broader economy.

Manufacturing output grew just 0.51 per cent in June, according to the Economics Ministry, the weakest growth since January 2020.

The painful adjustment may only be temporary, according to Woods Chen, chief economist at Yuanta Securities Investment Consulting.

He sees a positive outcome for Taiwan after its chip manufacturers managed to secure a greater global market share while their competitors struggled during the pandemic.

“The most recent boom has slowed as companies around the world manage their inventories in the post-Covid era, which may have an impact on Taiwan for three or four quarters,” he said.

“But Taiwan now has a head start in the post-Covid world. Exports will continue to drive the economy but even more concentrated in the electronics sector and being concentrated in a future trend is a good thing.” BLOOMBERG