Taiwan GDP Growth Edges Up in Q3

The Taiwanese economy edged up 3.8 percent in Q3 from 3.7 percent the previous quarter. This fell just short of consensus expectations, but growth was broad-based with particular strength in trade activity.

Domestic and Global Economy Drive Growth in Q3

Real Taiwanese GDP growth in Q3 moved slightly higher to 3.8 percent year-over-year, from 3.7 percent the previous quarter, but fell just short of consensus expectations (top chart). Underlying details of the report were firm, suggesting a strong domestic economy as well as some strength abroad. Particularly encouraging were increases in exports and imports, as this adds a bit of relief to recent concerns regarding the strength of global growth in recent months. 

Both imports and exports posted sizable gains in Q3, rising 8.4 percent and 7.3 percent, respectively. Imports more than doubled from a rate of just 3.8 percent in Q2, showing a solid pick up in domestic demand, as real imports are equivalent to 50 percent of GDP. From a global growth perspective, the big jump in exports, from just 4.4 percent the previous quarter, is indicative of increased demand worldwide. While trade numbers on both sides of the ledger are encouraging, we caution that some of the strength could be a result of base effects, as imports and exports dipped a bit in Q3 2013. 

Turning our focus to the domestic economy, growth in private final consumption has held steady at right around 2.5 percent for the past three quarters, as personal consumption remains firm, but is not necessarily booming. Growth in gross capital formation picked up for the second consecutive quarter, rising 7.9 percent and government consumption also accelerated modestly to 3.2 percent from just 1.1 percent in Q2. Solid growth in investment by businesses and government consumption suggests the domestic economy is on firm footing as further growth is expected in the coming quarters. 

On a sector basis, growth was led by manufacturing, which posted an 8.0 percent year-over-year rate of growth. This marks the fifth-consecutive quarter of acceleration and is an encouraging indicator of strengthening economic activity. Only three sectors posted modest declines in the quarter, each posting a less than one percent drop. 

Inflation Remains Muted

Consumer inflation continues to be low and experienced a relatively large dip in September, as the headline fell to just 0.7 percent (bottom chart). Low inflation has resulted in the Central Bank of the Republic of China keeping its main policy rate at 1.88 percent for more than three years. Consensus expectations are looking for a modest increase in interest rates in the next couple of months, but the rate of increases should be quite modest through the end of 2015. Our near-term outlook is for the Taiwanese dollar to remain relatively range-bound. However, with the Fed expected to raise rates more quickly than the Taiwanese central bank, we see potential for some weakness in the Taiwanese dollar toward the middle to end of next year.