Today 11:37 PM ET (Dow Jones)
By Fanny Liu TAIPEI--Taiwan's export-dependent economy logged the best quarter in more than a year as developed economies gathered steam. Still, some economists worry that continued political infighting on the island could curb growth.
Home to the world's biggest semiconductor factories and suppliers to electronics brands, Taiwan is seen as a bellwether of the global economy. Exports to the U.S. and Europe rose at the fastest clip in more than two years in the first quarter, while shipments to China barely grew.
The bright spot contrasts to a slump in regional exports, which are now are barely in positive territory, even as the U.S. economy revives.
As exports and domestic spending improve, Taiwan is on track to post its strongest growth in three years, according to earlier government projections.
Optimism also has spread to the corporate sector, with export-focused chip maker Taiwan Semiconductor Manufacturing Co. Ltd. and camera-lens producer Largan Precision Co. Ltd. both recently upgrading their sales outlook for the rest of this year, citing an uptick in overseas demand.
"Advanced economies, which may pick up even more quickly later this year, will probably sustain a stronger export growth for Taiwan going forward, " said ANZ economist Raymond Yeung.
In the three months ended March 31, Taiwan's gross domestic product rose 3.04% from the same period a year earlier, the strongest since the fourth quarter of 2012, a preliminary estimate released by the Directorate General of Budget, Accounting and Statistics showed on Wednesday.
That estimate is largely in line with a forecast by economists surveyed by The Wall Street Journal, and slightly faster than the 2.95% expansion in the previous quarter.
Compared with the previous three-month period, GDP grew only 0.27% in the first quarter. The first quarter had fewer working days because of the Lunar New Year break, and the fourth quarter is usually the strongest period of a year as exports and domestic consumption rise from year-end holiday sales.
Those factors dragged on exports, which grew 0.98% in the first quarter, compared with the same period a year earlier, after a 1.76% rise in the previous quarter.
Yet export orders, an early indicator of actual exports, rose 5.9% last month. That suggests shipments to overseas markets will pick up in the second quarter, as a number of new electronic gadgets hit the market. Western demand also is expected to keep improving.
Boosted by a rising stock market and an increase of tourists from China in the first quarter, domestic private consumption grew 2.94% on year--slightly better than a government estimates. Taiwan's benchmark stock index hit its highest levels in nearly three years, helped by foreign-investor inflows.
Growth in tourism dollars is another bright spot. Taiwan hosted 8 million visitors last year, the highest on record. That number is expected to keep rising. New hotels, shops and restaurants in the capital, Taipei, gave a boost to consumer and corporate spending in the first quarter, a trend that will continue, Barclays economist Waiho Leong said.
While growth momentum is gathering pace, some economists believe that Taiwan's economy may be stuck in low gear.
Bank of America-Merrill Lynch economist Marcella Chow said uncertainty over a trade deal with China and ongoing political tensions on the island could stall real income growth and consumer sentiment.
The economy also has been operating below its potential since 2011, according to some economists.
Like many Asian exporters, Taiwan is benefiting less from the current U.S. economic recovery than in previous cycles. This is partly because much of U.S. GDP growth is powered by capital investment, and consumers there haven't significantly stepped up spending, as they are still paying down debt.
Taiwan also is no longer a dominant player in manufacturing, with rivals from China, South Korea and southeast Asia close on its heels. China's increasing reliance on locally-produced raw materials and components, as part of the country's structural change, also cools demand for Taiwanese products. Continued outflow of capital and skilled workers, mostly to China because of its higher growth potential, have also been hollowing the island economy and hurting domestic consumption.
Taiwan's government doesn't have much room to pump additional dollars into infrastructure projects to create jobs as it did in the last two decades, as the administration is already very close to its debt ceiling. An aging population and high savings rates likewise don't encourage household-spending growth.
"It will be very difficult for Taiwan's GDP to grow more than 5%...a plus-3%-growth would be high enough," said Standard Chartered economist Tony Phoo.
Corrections & Amplifications
In the three months ended March 31, Taiwan's gross domestic product rose 3.04% from the same period a year earlier. An earlier version of this article incorrectly describes the period as the three months ended January 31 in the third paragraph.
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(END) Dow Jones Newswires
April 29, 2014 23:37 ET (03:37 GMT)
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