DGBAS raises 2021 GDP forecast to 4.64%

20 February, 2021

By ECCT staff writers

Taiwan’s real GDP increased by 5.09% on a year-on-year basis in the fourth quarter of 2020, taking full year GDP growth to 3.11%, according to a news release of a revised preliminary estimate by the Directorate General of Budget Accounting and Statistics (DGBAS). In the same report the DGBAS revised its forecast for 2021 GDP growth upwards to 4.64%.

According to the report, while real private final consumption contracted by 1.07% in 4Q20 gross capital formation, construction investment and transportation equipment investment grew significantly, but machinery equipment investment didn’t surpass the record high in 4Q19. Combining inventory changes, real gross capital formation contracted by 0.95%.

In addition, real exports of goods and services grew by 5.67%, mainly driven by the strong foreign demand for parts of electronic products, as well as information, communication, and audio-video products. Meanwhile, imports of goods and services decreased by 2.9%.

On the production side, the manufacturing sector grew by 8.87% in 4Q20, following the 5.56% increase in the previous quarter, mainly due to the output expansion of semiconductor and computers, electronic & optical products.

The wholesale & retail trade sector and the financial & insurance sector increased by 8.63% and 5.75% respectively, after the expansion of 6.75% and 6.31% growth in the previous quarter. The transportation & storage sector and the accommodation & food service sector decreased by 16.03% and 1.97% respectively, following the 18.28% and 0.38% decline in the previous quarter, according to the report.

Looking ahead, the DGBAS said that rises in exports, private consumption and capital formation will all support stronger GDP growth than previously estimated in 2021. According to the report, capacity expansion brought by the massive investment of semiconductor manufacturers, digitalisation and remote demand spurred by the pandemic and the emerging demand for new technological applications, such as 5G, automotive electronics, high performance computing and IoT as well as the rebound of global trade, will support Taiwan’s exports in 2021. It is expected that real exports of goods and services will grow by 5.05% in 2021.

Meanwhile real private consumption is expected to grow by 3.74% in 2021, supported by a stable labour market, the wealth effect owing to the surging stock market, and the effect of a low base due to the pandemic. However, tightening government restrictions in winter for preventing the spread of Covid-19 might dampen consumer confidence slightly.

Real private fixed capital formation is anticipated to grow by 3.91% in 2021. In addition to the accelerating investment of the semiconductor industry and the reshoring by Taiwan’s companies, it will also be driven by 5G infrastructure, offshore wind energy, reconstruction of unsafe and old buildings, urban renewal, and the airline industry expanding purchases of aircraft.

Combining the above components as well as the public sector, Taiwan’s real GDP is projected to grow by 4.64% in 2021, an upward revision of 0.81 percentage points from the previous forecast.

Meanwhile the Consumer price Index (CPI) is expected to increase by 1.33 on the back of rising crude oil and raw material prices.

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