Taiwan’s key economic indicators moved sideways along the bottom of an L-shaped line in the first half of the year and may fail to pick up significantly if exports to China continue to fall in the second half, UBS Securities Asia said in a recent report.
The nation’s growth momentum neither picked up nor deteriorated in the second quarter as a result of two opposing forces — a resilient US and a surprisingly weak China — driving external demand for Taiwan’s exports, the Swiss financial services provider said.
“We see a downside to our prediction of 3 percent growth for Taiwan this year if Chinese growth fails to stabilize in the second half,” USB economist Silvia Liu said.
China accounts for 40 percent of Taiwanese exports, which have a value equivalent to 70 percent of nominal GDP.
Headline exports remained lackluster in May at US$26.34 billion, expanding by a mere 0.9 percent compared with the same period last year, the Ministry of Finance said in a report. The ministry is slated to release last month’s data today.
Taiwan’s exports to the US are stabilizing, driven by a stronger US economy and increased US demand for communication products after the release of a new smartphone by HTC Corp (宏達電), the world’s No. 5 smartphone brand.
For the first five months of the year, the US was the destination for 10.6 percent of Taiwanese exports, while Europe accounted for 9 percent, according to ministry data.
A recovering US and — to a lesser degree — continued stabilization in Europe in the form of no renewed deterioration should put a floor under external demand, UBS said.
While the cyclical nature of the figures is unexciting, UBS said it spotted a positive development in Taiwan’s macroeconomic situation this year after the country made more concerted efforts to diversify its industrial base, particularly by growing its service exports and negotiating agreements with its trading partners.
The number of newly registered manufacturing factories has been on the rise since 2010, reversing a downward trend seen since 2004, Liu said, adding that the increase seen over the past few months has been particularly eye-catching.
This echoes news reports on the return of Taiwanese manufacturers from China to open up factories and the peaking of Taiwan’s overseas production ratio since 2010, the economist said.
“The drag on Taiwan’s economy caused by the hollowing out of the manufacturing sector should fade soon,” Liu wrote.
Furthermore, the contribution of services exports to GDP has kept growing, from 7 percent in 2005 to more than 10 percent this year, Liu said.
The nation started to run a surplus on its services trade in 2008, but there is ample room for the country to expand and catch up with the key services providers in the region, namely Hong Kong and Singapore, Liu said.
UBS painted the recent signing of the service trade agreement between China and Taiwan as a major, positive step toward liberalization and said it expects the conclusion of a free-trade agreement (FTA) with Singapore to be Taipei’s next major economic achievement.
While an FTA with Singapore may not produce material benefits, it would serve as a template for more efficient FTA negotiations between Taiwan and other ASEAN countries in the future, Liu said.