2023 GDP forecast cut to 2.04%
By ECCT staff writers, DGBAS
Taiwan’s real GDP contracted by 2.36% on a quarter-on-quarter, seasonally-adjusted annualized basis and 2.87% on a year-on-year basis in the first quarter of 2023 (1Q23), according to the latest preliminary estimate by the Directorate General for Budget Accounting and Statistics (DGBAS). Meanwhile, economic growth rates have been revised to -0.78% and 2.35% for the 4Q22 and the full year of 2022, respectively (from former estimates of -0.41% and 2.45%, respectively).
On the demand side, real private final consumption grew by 6.48% in 1Q23, mainly driven by a strong rebound in spending on dining out, accommodation, recreation, transportation and vehicles, as well as the flourishing outbound tourism, owing to the reopening of borders, but partly offset by the decrease in financial services, according to the DGBAS’s latest news release.
In terms of gross capital formation, investment in machinery equipment and intellectual property products continued to grow. However, investment in construction and transportation equipment dropped. Combining the reduction of inventory, real gross capital formation declined by 3.24%. In addition, real exports of goods and services dropped by 10.8%, mainly caused by weak global demand and inventory adjustments. Imports also fell by 4.01%.
On the production side, the manufacturing sector decreased by 12.05% in 1Q23, lower than the -4.93% in the previous quarter, mainly due to the weak market demand for semiconductors, chemical materials, basic metals, fabricated metal products, and machinery & equipment.
The wholesale and retail trade sector decreased by 7.45%, after the contraction of 3.39% in the previous quarter. The transportation and storage sector grew by 25.27% in 1Q23, due to the growing number of passengers taking land and air transport. The financial and insurance sector decreased by 4.33% in 1Q23, following an 8.84% decline in the previous quarter.
Looking ahead to the rest of 2023, global economic growth is projected to slow down due to the demand crunch caused by inflation, interest-rate hikes and the ongoing war in Ukraine. In addition, with the end of the pandemic, consumer spending has shifted from goods to services, and the adjustment period of commodity inventories has been prolonged. According to the International Monetary Fund (IMF), the drop in global demand momentum is expected to reduce global trade volume growth to 2.4% in 2023, lower than 5.1% in 2022. However, the surge in inbound tourists would spur travel revenue. In aggregate with services exports, real exports of goods and services are expected to shrink by 0.6% in 2023.
However, real private consumption is expected to rise by 6.92% following a return to normal consumption patterns after the pandemic along with strong gains in shopping, travel, and food services. Growth will also be boosted from the flourishing outbound tourism owing to the reopening of borders, the stabilizing labour market and the government's universal cash remittance launched since this April.
On the investment side, the continuing investment of semiconductor industry, overseas companies’ reshoring, sustained investment in offshore wind energy and airline companies expanding aircraft fleets to cope with the increase in overseas travel, will all support overall investment. However, enterprises’ capital spendings may be cautious due to the uncertainty toward the global outlook and the effect of the previous year’s high base. Overall real private fixed capital formation is expected to decrease by 2.49% in 2023.
Combining the above components as well as projected public sector spending, Taiwan’s real GDP is projected to grow by 2.04% in 2023, which is a downward revision of 0.08 percentage points from the previous forecast.