Why is Taiwan’s biggest order decline since 2009 an ominous sign for global economy heading into 2023?

Global demand for goods from Taiwan saw its most dramatic slide in nearly 14 years last month, according to fresh export data that could portend a slow economic start to 2023 in much of the world.

The value of shipment orders placed to Taiwan reached US$50.14 billion last month, down 23.4 per cent over the same month last year, Taiwan’s Ministry of Economic Affairs said in a statement on Tuesday. Orders last fell by a magnitude that high in March 2009.

Consumers in Europe – a market for Taiwan’s PCs and other electronic devices – are grappling with inflation that has jacked up heating bills over uncertainty about energy supplies from its traditional gas seller: Russia. And Fitch Ratings forecasts a mild recession in the United States, also beset by inflation, from the second quarter of next year.

“If you look at retail sales numbers, it’s pretty awful,” said Tony Phoo, an economist with Standard Chartered Bank in Taipei. Ahead of the year-end holidays in Europe, he said, consumers are “keeping warm instead of pampering themselves”.

Orders placed by buyers in Europe lost 26.3 per cent last month, while those made in the United States declined by 16.7 per cent.

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Manufactured PCs, smartphones and components for consumer electronics make up the highest share of Taiwan’s exports, which in turn anchor its US$850 billion economy.

Orders for consumer electronics sank by 15.2 per cent to US$17.2 billion last month, according to ministry data. However, the island’s bellwether chipmaker, Taiwan Semiconductor Manufacturing, says it expects little change in its net revenue and operating margin between the July-September quarter and the final three months of the year.

In South Korea, another export-reliant Asian economy, global shipments of information and communication technology products dropped by 22.5 per cent in November on weakening demand, the Seoul-based Yonhap News Agency reported. South Korean exports of such as consumer electronics have fallen for five consecutive months.

Export orders to Taiwan from its biggest buyer – mainland China and Hong Kong – fell for an eighth straight month in November. The November total of US$10.08 billion marks a 37.3 per cent fall, year on year.

Despite a recent easing of economically damaging Covid-19 controls on the mainland, a surge in coronavirus infections has kept people indoors and away from shops or entertainment venues.

Factories that buy a lot of Taiwan’s exports are reporting a dearth of labour because workers have left for their hometowns to avoid any lockdowns, said Hu Jin-li, a professor with the Institute of Business and Management at National Yang Ming Chiao Tung University in Taipei.

“Since the Covid-19 controls loosened, China is suffering from a suddenly increased number of infected cases,” Hu said. “After herd immunity is achieved on the mainland, maybe in the first or second quarter of 2023 at the earliest, mainland China can be a strong player in the world market again.”

Earlier in the year, lockdowns slowed factory production and cramped consumption, further limiting export orders placed in Taiwan.

Mainland China is still grappling with restrictions on its exports from the United States and US allies, Hu added.

“These real obstacles are for mainland China to overcome,” he said.

The value of actual exports from Taiwan to the rest of the world declined 13.1 per cent in November, year on year.

Taiwan’s industrial production in November probably lost 5 per cent, year on year, marking a steeper drop than the 3.6 per cent decline in October, Goldman Sachs said in a research note on Friday.

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A 5 per cent fall in production “would be consistent with recent declines in exports and export orders, as well as continued moderation in the sales revenues of major tech companies in November”, the note says.

Even in Southeast Asia, which some analysts had expected to be a bright spot for Taiwan exports, orders dropped by 17.7 per cent last month.

The International Monetary Fund forecasts 6.2 per cent economic growth next year for both Cambodia and Vietnam, along with a 5 per cent expansion in Indonesia and the Philippines.

The Asian Development Bank upgraded its 2022 Southeast Asia economic growth forecast this month from 5.1 per cent to 5.5 per cent on what it describes as “robust consumption and tourism recovery” in Malaysia, the Philippines, Thailand, and Vietnam.