Taiwan enters recession on weak worldwide demand for its electronics
- Global inflation and rate-hike pressure also contributed to a second-straight quarter of economic contraction for the island, this time by more than 3 per cent
- Tech makes up 30 per cent of Taiwan’s US$800-plus billion economy, and its factories ship nearly two-thirds of the world’s computer chips
One of the world’s most important exporters of hi-tech gear has fallen into recession, owing to a drop in global demand for consumer electronics and trouble in major world markets.
Taiwan’s highest authority in charge of the budget – the Directorate-General of Budget, Accounting and Statistics – estimated on Friday that the world’s 21st-largest economy shrank by 3.02 per cent from January through March, year on year, and by 6.37 per cent compared with the final three months of last year.
“Broad-based weakness in external demand for Taiwan’s exports of electronic products and information and communication technology equipment will persist at least in the coming quarter,” said George Xu, director of sovereigns for the Fitch Ratings credit agency.
Declines in world demand for smartphones, PCs and other common electronics have throttled shipments of those devices and their parts, including semiconductor chips.
Consumers have pulled back since last year after a pandemic-induced shopping spree saw people splurge on devices needed for telework and home study. Inflation and interest rate hikes also began pressuring Western economies in 2022, in turn dampening consumer demand and leaving Taiwanese manufacturers with excess inventory.
Tech makes up 30 per cent of Taiwan’s US$800-plus billion economy, and its factories ship nearly two-thirds of the world’s computer chips.
Global smartphone shipments fell by 13 per cent to 269.8 million units in the first quarter of 2023, according to market research firm Canalys. The number of PCs shipped in the first quarter dropped by 28 per cent, year on year, to 56.7 million units, per data from the Counterpoint Research firm.
S&P Global expects the United States to enter a mild recession this year, while the European Commission forecasts just 0.8 per cent growth for the euro zone.
Taipei’s budget authorities pointed on Friday to “global inflation, sustained rate-hike pressure, and continued weak end-consumer demand, in addition to impacts from inventory adjustments”.
In South Korea, another export-reliant Asian economy, the gross domestic product (GDP) grew 0.3 per cent from January to March after contracting by 0.4 per cent in the last quarter of 2022.
Taiwan’s fourth-quarter contraction of 0.86 per cent in 2022 was already the first such fall since 2016, and it was the most severe since a 1.13 per cent drop during the global financial crisis in late 2009.
Taiwan’s manufacturing sector is likely to gradually start feeling the positive impact of China’s opening up
A recession means Taiwan’s biggest companies will reduce capital spending for much of the year, said Tony Phoo, an economist with Standard Chartered Bank in Taipei. Industrial production in Taiwan had already fallen for a seventh consecutive month in March.
However, Taiwan is expected to improve later in the year on the back of mainland China’s economic recovery, inbound tourism and domestic stimulus measures such as cash handouts.
China, the world’s second-largest economy, grew by 4.5 per cent in the first quarter, beating expectations along its path to a post-Covid recovery.
“Taiwan’s manufacturing sector is likely to gradually start feeling the positive impact of China’s opening up,” said Louis Kuijs, chief Asia-Pacific economist at S&P Global Ratings. “In all, after a weak entry in 2023, economic momentum should strengthen throughout the year.”
