Business outlook for 2020
ECCT directors give their predictions for the year ahead and what trends to watch
By Duncan Levine
As we enter the third decade of the 21st century, a lot is happening in world. Many geopolitical and environmental factors, technological and demographic trends will have an impact on the world of business both globally and in Taiwan. We asked ECCT directors to do some crystal-ball gazing and make some predictions for the year ahead. The following is what they replied to a list of questions as well as their comments.
What will Taiwan's GDP growth rate reach in 2020? (%)
2.51% (average score). Directors’ forecasts all fell within the range of 2-3%, slightly conservative given that most were below the official forecast of 2.72% of the Directorate General for Budget Accounting and Statistics.
Will Taiwan’s trade with Europe, the US and Asia rise in 2020?
Remain stable (majority view). There was no consensus among directors on this question and answers depended on which region was being discussed. A slight majority expect overall trade to rise thanks to predictions that trade between Taiwan and the US will continue to rise as many Taiwanese companies shift their operations away from China. Directors were less optimistic about trade with Asia and Europe. They were split on whether trade with Asia and Europe would rise. Some expect trade with Asia to continue to rise while others expect it to remain stable. As for trade with Europe, most directors expect it will remain stable or decline.
Will the US go into recession?
No (was the answer from most directors). Key economic indicators suggest the US economy is growing slower than before but remains healthy (strong domestic demand and a very low unemployment rate). Recession therefore appears to be unlikely in the near future.
Will US-China trade tensions ease or get worse in 2020?
Stable initially with the potential to deteriorate (the majority view). Not surprisingly, directors were cautious in making predictions regarding volatile US-China trade relations. Overall, they expect a period of détente following phase I of the US-China trade deal. However, no one expects negotiations for a phase 2 deal to be easy given that it will touch on core issues, such as IP rights and rules governing state-owned enterprises. If phase 2 talks break down, all bets are off.
Will Taiwan benefit overall from US-China trade tensions?
Yes (was the unanimous answer from directors), with the caveat that Taiwan’s advantage would be diminished if the US and China reach a substantial (phase 2) bilateral trade deal.
Will global carbon emissions fall in 2020?
No (was the unanimous answer from directors). Bad news for the environment if this turns out to be true but directors expect growing energy demand in emerging economies such as China and India to cancel out gains in reducing emissions made in developed economies, especially Europe.
How many gold medals will Taiwan win in the 2020 Tokyo Olympics?
2 (the average prediction within a range from 0-3). Note, that we only asked directors how many gold medals Taiwan would win. Hopefully, there will many silver and bronze medals as well.
ECCT directors' predictions and comments
In addition to answering questions, directors offered some specific personal predictions, based on their professional expertise and industry experience.
Giuseppe Izzo (ECCT Chairman, Co-Chairperson, Technology committee & Managing Director, Taiwan & Vice President, Asia Pacific Region, STMicroelectronics): Semiconductor market dynamics will follow IT trends. Connectivity and electrification will continue to drive growth in the automotive sector, although the market for smart phones, which is close to maturity, will not be much of a driver. Moore’s Law will continue to apply as the production of microchips using 7-nanometre (nm) Fin Field-Effect Transistor (FinFET) technology, being deployed today, shifts towards 5nm and 3.5nm over the next few years. Other advances in semiconductors will involve the use of new materials, such as silicon carbide for electric vehicles and new technologies such as millimetre wave (mm Wave) sensing technology, which will be deployed for both 5G and Low Earth Orbit (LEO) satellites.
Erdal Elver (ECCT Vice Chairman & President & CEO, Siemens Limited Taiwan): With the temporarily easing of trade tension between the US and China and the warming global economy, Taiwan’s economy will likely continue its economic growth trajectory into 2020. Investment in energy and high tech sectors will likely offset weakness in the machine tool industry. As the US and China have reached only phase 1 of their agreement, the two sides will be entering ‘deep water’ in their future negotiations. This poses potential risks to bilateral trade if the on-going discussion falls apart and the two sides revert to a tit-for-tat tariff war.
Bart Linssen (ECCT Executive Director, Co-Chairperson, Wind & Managing Director, Enercon Taiwan): In 2020, climate change will finally get the momentum and recognition of urgency that it deserves (Thank you, Greta!). In many countries, new renewables have become cheaper than existing coal and gas. In Taiwan, persistent air-pollution problems will help renewables and electrification of transport get bipartisan support.
Jan Hollmann (ECCT Director, Co-Chairperson, Mobility committee & Managing Director, Robert Bosch Taiwan): The overall automotive market in Taiwan will remain stagnant, although international OEMs, especially European OEMs, will still be able to grow and gain market share. The Corporate Average Fuel Emissions (CAFE) standards will make things even more challenging as of 2022, as long as there are no supporting plans/ policies from the government. This also applies to the global mega mobility trends (towards connected, electric, autonomous and shared mobility), in particular electrification. Without government support and effective incentive schemes for both new car sales as well as for building infrastructure, the trend will not materialise and the government’s EV targets for 2030, 2035 and 2040 will not be met. It is highly unlikely that fully autonomous driving solutions (level 4/5) will be seen on the streets in the next decade (besides a few pilot projects). However, automated driving solutions (level 2/3) such as driver assistance systems will continue to gain significant market share in the years ahead.
John Winter (Director & Country Manager, Robert Walters Taiwan): Taiwan has the potential to have another positive year economically speaking. The net gains made from the China-US trade war have calcified with companies recapitalising manufacturing away from the mainland to Taiwan. There are potential sizeable macro headwinds, particularly with the threat of an escalation in the Middle East and unknown ramifications of Brexit.
Guillaume de Braquilanges (ECCT Director & CFO, Carrefour Taiwan): The retail Industry has been moving very fast over the last three years and no doubt the trend will continue in 2020. The digital transformation and the rising penetration of online sales have been seriously disrupting traditional business models and they will keep doing it! Still, service to the customer will remain key in the value proposition. The rising demand for a food transition, where consumers are demanding safe, high-quality food that is good for their health and does not harm the environment and that is also at an affordable price, represent the key major challenges for all the retail players in the Taiwanese market. We can therefore expect some consolidation moves in the increasing competitive race to win customers.
Markus Wild (ECCT Director & Managing Director, EnBW Asia Pacific): Trade tensions between China and the US boosted Taiwan’s economic growth in 2019 and this will continue in 2020 while there are no signs that the US and China will find solutions to core issues in the near term, such as IP rights and market access and competition issues. However, steady renewable energy supply is the key to drive Taiwan’s economic growth in the long term. Taiwan will benefit from US-China trade tension by having many companies, especially giant technology enterprises moving operations back to Taiwan. However, to keep this advantage and to ensure these enterprises keep these operations in Taiwan, will require Taiwan to create and secure a long-term renewable energy supply for their operations.
Industry outlook from ECCT committees
We also asked representatives from ECCT committees to give their views on the business climate outlook. The following are some of the predictions made by ECCT committees in the 2020 Position Papers:
Banking: Trade tensions have triggered supply chain reallocations and a return of Taiwanese businesses to Taiwan, which will not only help to boost the domestic economic outlook but also prompt capital repatriation and therefore create new wealth management and investment opportunities for the banking and financial industry. The capital repatriation law provides a good opportunity to transform and elevate Taiwan’s wealth management position in the region.
Electrical Engineering and Equipment: While global trade disputes have affected the global economy, including Taiwan, increased inbound investments from companies diversifying away from China could help Taiwan’s economy offset the impact of external factors. The outlook for 2020 remains clouded by US-China trade tensions and the persistent down cycle in the electronics sector. On the bright side, domestic demand could serve as a major growth engine, driven by the government’s forward-looking infrastructure development programme, focusing on developing the transport network and a rebalancing of the power sector. Meanwhile, industry trends towards smart machinery, industry 4.0, factory automation and green energy policies together with electricity grid developments should also serve to boost the economy.
Mobility: Following the global environmental protection trend, the government plans to tighten regulations on Corporate Average Fuel Emissions (CAFE), starting in 2022. Implementing this policy without supporting plans would make it extremely challenging for the automotive industry to meet the required standard, despite the fact that there will be sufficient new energy vehicles such as battery electric vehicles and plug-in hybrid electric vehicles (PHEV) to meet the requirements. To accelerate the transition towards new energy vehicles, supporting measures, such as an attractive subsidy policy for new energy vehicles, a nationwide charging infrastructure, regulations for the installation of charging hardware in existing and new buildings and efforts to educate consumers, are needed.
Retail & Distribution: While bricks and mortar retailers will continue to play a dominant role in the grocery market, they will battle against both online retailers and amongst one another for their share of a market which is not exhibiting signs of growth. Without business innovation, sales growth in 2020 is likely to be flat. Changes to the minimum wage in Taiwan continue to contribute to an overall increase in salaries which exceeds the growth in the retail sector and therefore brings further pressures. Eventually the increases to salaries should stimulate the economy but this does not yet appear to be positively influencing the retail sector. Changes to legislation are a further challenge when introduced without the appropriate consultation and review process or at short notice. There has been little change in the area of import restrictions, and new legislation relating to organic products give cause for concern.
Supply Chain: The introduction of new sulphur oxide reduction standards by the International Maritime Organisation on 1 January 2020 will have an impact on the global shipping industry, creating some uncertainty on the cost and supply of container vessels. Other uncertainties for the industry include Brexit and tensions in the Persian Gulf region.
Technology: In 2020, Taiwan should still be a net beneficiary of tension between China and the USA. The growth in intra-Asia trade should also benefit the supply chain industry. We also observe more foreign companies trying to establish their brands in Taiwan, which should boost the import volume. The complete deployment of 5G will drive a wealth of new IoT applications across all market sectors. We will see more connectivity that will enhance the functionality of many objects and their safety when required, especially in transportation and mobility in general. We will also see a more decisive growth in electric vehicles combined with deployment of advanced driver-assistance systems, a further step towards autonomous driving. The consumer sector is undergoing rejuvenation with significant transformation of audio and video hardware, where we will see better, thinner displays, with higher definition and enhanced sound quality. Finally, improved macro-economic conditions will pave the way to larger demand for IT products.
Travel & Tourism: There is an opportunity for the tourism industry ahead of the 2020 Tokyo Olympic Games. With more people coming to Asia for the games, there is an opportunity for Taiwan to attract international tourists to spend a few days in Taiwan as part of their itineraries.
Wind Energy: The industry has entered its pivotal period as several commercial-scale offshore wind projects reached financial close, testing both the international and local NT dollar debt capacity in Taiwan and establishing Taiwan as the pioneer for offshore wind in the Asia Pacific region. Industry players look forward to 2020 when Taiwan’s first commercial-scale offshore wind farm will start its commercial operation.