Taiwan's Economy Decelerates After Fastest Growth in Years

(Bloomberg) -- Taiwan’s export-dependent economy decelerated after hitting its stride at the end of last year, when it posted the fastest growth in almost three years.

The expansion slowed to 3.02 percent in the first quarter, according to revised data released Friday by the statistics bureau in Taipei, in line with a preliminary reading of 3.04 percent and the 3 percent estimate in Bloomberg’s survey of economists. That was slower than the fourth-quarter pace of 3.28 percent, which was the most robust since the start of 2015.

The government upgraded its full-year forecast for 2018 to 2.6 percent from 2.42 percent due to robust growth in domestic demand.

“Taiwan’s economy used to be driven by external demand,” Chu Tzer-ming, head of the official statistics agency, told reporters after the data release. “Internal demand, including both consumer spending and investment, is rebounding this year and that’s the main reason we upgraded our forecast.”

Growth is holding up, albeit at a slightly slower pace, amid a weakening Taiwan dollar that’s making exports more attractive as well as rising oil prices that are helping to lift inflation. Those will be the issues for policy makers at their next gathering on June 21, when they’ll weigh whether to keep the main rate at 1.375 percent, where it’s been since mid-2016.

After a two-year rally against the U.S. dollar, driven by foreign investors buying shares of Taiwanese companies that supply components and services to Apple Inc. products, Taiwan’s currency has reversed gains to fall about 2.8 percent since the end of March. That’s been largely in line with Asian peers as U.S. markets offer increasingly attractive yields.

The currency has also weakened over concerns that the cycle of iPhone production may be losing steam after shipment growth slowed and iPhone X sales missed analysts estimates.

Read More: Wearable Tech Seen Offsetting Smartphone Slump

Oil prices this month have touched levels last seen more than three years ago, adding to inflationary pressure across an economy that imports all of its fuel. While the incoming volume of crude has fallen slightly in the first four months of 2018 from a year earlier, government data show Taiwan’s oil bill increased by about 12.6 percent in the same period.

A 10 percent increase in the price of oil would reduce economic growth by 10 basis points while adding 34 basis points to inflation, Chu said.

Stable economic expansion, a weakening currency and rising oil prices have been helping firm up inflation since October. The consumer price index rose 1.98 percent on-year in April, in line with the central bank’s 2 percent comfort limit, and reached a one-year high of 2.19 percent in February. Economists project the CPI will rise 1.3 percent a year through 2020.

Inflation is rising just a few months into the term of Taiwan’s new central bank governor Yang Chin-long, who said at a briefing in March that the acceptable range for the CPI is between zero and 2 percent. He also cautioned about the possibility of a trade war as a potential risk to Taiwan’s export-oriented economy, which emerged from a three-quarter recession in early 2016.

The chances of a rate hike in September are increasingly likely, economist surveys show. Taiwan’s benchmark rate will rise to 1.5 percent by then and remain there until year end, according to Bloomberg’s survey of forecasters.

©2018 Bloomberg L.P.

Bloomberg
Stay Updated With Business News News On BloombergQuint