Economic outlook ‘softening’ in Taiwan

Latest decline in leading indicators shows damage from mainland slowdown

Taiwan’s economy has entered “a softening phase” after business indicators released yesterday declined for a 12th straight month, highlighting the problems caused by disruptions on the mainland, the island’s chief trading partner.

Seven leading indicators recorded a composite score of 95.63 in October, down almost 1 per cent from September, according to the National Development Commission.

The index, which includes indicators for imports of semiconductor equipment, net hiring, export orders, the stock market, building permits, money supply and manufacturing sector health, is designed to give an outlook for the next six months.

“It likely means that the Taiwan economy is in a softening phase,” said Tony Phoo, a Taipeibased economist with Standard Chartered Bank.

“By the look of things, the global economy is slowing and tech demand is further weakening.”

Taiwan’s economic outlook is heavily influenced by its relationship with China

MOODY’S ANALYTICS ECONOMISTS

A slowdown on the mainland, home to some 4,200 Taiwanese firms and the top investment destination for Taiwanese capital, was placing particular pressure on the island’s roughly US$850 billion economy, economists said.

Taiwan’s exports to the mainland reached US$103 billion in the first 10 months of 2022, down slightly compared to the same period a year earlier. Direct investment from Taiwan to the mainland fell by 3.2 per cent year on year to US$4.16 billion between January and October.

Orders of made-in-Taiwan exports for the mainland and Hong Kong totalled US$10.5 billion last month, 26.7 per cent lower year on year, Taiwan’s Ministry of Economic Affairs said last week.

“Expect this to continue through the first half of 2023 as [the mainland] grapples with managing its manufacturing industries in the context of zero-Covid policy uncertainty,” Moody’s Analytics economists Steven Cochrane and Katrina Ell said.

Rising coronavirus infections have sparked new lockdowns and protests this month on the mainland, which could further damage consumer spending and disrupt global supply chains.

Taiwanese firms depend on mainland supply chains to assemble PCs and smartphones for global export, while some sell finished products into the giant mainland market.

“Taiwan’s economic outlook is heavily influenced by its relationship with China,” the Moody’s economists added. “If trade relations were to deteriorate for a sustained period, it would be detrimental to Taiwan’s economic prospects.”