Economy & Business

Business outlook for 2022

19 January, 2022

ECCT directors provide some insights on the business and economic trends to watch in the year ahead while Taiwan-based political commentators give their views on the geopolitical outlook for Taiwan

By Duncan Levine

Taiwan’s economy outperformed the global average for the second consecutive year in 2021. Driven by exports of products needed for hybrid work and digitalisation, Taiwan was a net beneficiary of the trends that accelerated during the pandemic. Taiwan’s total trade value measured in US dollars reached a record high level in 2021 of US$827.6 billion in 2021, up 31.1% from 2020 on the back of exports of US$446.45 billion, up 29.4% year-on-year, and a 33.2% rise in imports to US$381.17 billion. Taiwan’s GDP expansion was also supported by strong growth in fixed capital investment in the second half of 2020, which extended into the first half of 2021, and remained at an elevated level in the second half of 2021.

Looking ahead to 2022, the WEF’s recent Global Risks Report gives a rather pessimistic outlook. Its executive summary says that Covid-19’s economic and societal consequences continue to pose a critical threat to the world. "Vaccine inequality and a resultant uneven economic recovery risk compounding social fractures and geopolitical tensions," according to the report. It notes that in the poorest 52 countries, which are home to 20% of the world’s people, only 6% of the population had been vaccinated (at the time of writing). By 2024, developing economies (excluding China) will have fallen 5.5% below their pre-pandemic expected GDP growth, while advanced economies will have surpassed it by 0.9%—widening the global income gap, it says. The resulting global divergence will create tensions—within and across borders—that risk worsening the pandemic’s cascading impacts and complicating the coordination needed to tackle common challenges including strengthening climate action, enhancing digital safety, restoring livelihoods and societal cohesion and managing competition in space. According to the those surveyed for the report, the top 10 most severe risks on a global scale over the next 10 years are: climate action failure, extreme weather, biodiversity loss, social cohesion erosion, livelihood crises, infectious diseases, human environmental damage, natural resource crisis, debt crisis and geopolitical confrontation.

The view that there will be divergence between developing and advanced economies in the year ahead is shared by Tony Phoo, Senior Economist for Standard Chartered Bank Taiwan. Speaking at an ECCT Special Lunch, Phoo said that the global recovery will be a multi-speed one with a marked difference between the performance of developed markets and emerging markets, especially those developing markets with poor fundamentals.

The trends that have been prevalent during the pandemic so far are expected to continue in 2022 and countries like Taiwan should benefit from the continuation of these trends. However, things are likely to cool down somewhat in 2022 compared to 2021. According to Phoo, economic growth will be maintained but at a slower rate than 2021’s breakneck pace due to a slowing of export growth and investments, among other factors. He also cautioned that inflation is likely to remain elevated while there are also other risks to the economy. The positive outlook of course depends on several assumptions, most crucially that Taiwan continues to be sheltered from the worst impacts of the coronavirus pandemic. All bets are off if the pandemic situation deteriorates.

There are also a fair number of global or regional factors that could throw things off course. If Taiwan continues to maintain strict border controls that keep out project and technology experts, it will delay the implementation of projects in multiple industry sectors. Meanwhile, supply chain and logistical bottlenecks have not been resolved and could even worsen if China, which is still the world’s largest manufacturing base, maintains its "zero Covid tolerance" strategy. Meanwhile energy prices, which are already high, could become more volatile and persistently high inflation could force central banks to hike rates more than currently anticipated. This could have knock-on effects for asset markets, particularly property and equity markets, which, in many cases look overvalued and ready for corrections, or worse.

We asked ECCT directors to give their insights on what to expect for the economy and their businesses in the year ahead. The following is how they responded based on their professional expertise and industry experience (published in the order in which they were received).

Giuseppe Izzo, Giuseppe Izzo, Managing Director, Taiwan & Vice President, Asia Pacific Region, STMicroelectronics Ltd.
"For the semiconductor business, the past two years has seen a tremendous shortage of supply to many sectors of the industry, automotive being one of them. The growth rate in the past 12 months has been around 25%. Moving forward we will still see growth, but at lower rate, possibly in the single digits."

Chen Mei-Lin, Chief Operating Officer, Richemont Asia Pacific Ltd., Taiwan Branch
"The luxury goods sector has benefited from a rising stock market and repatriation of overseas investment, as well as the stay-at-home economy during the pandemic. The outlook for the industry is cautiously optimistic amid the local zero tolerance Covid policy. Nevertheless, the pandemic has had a positive impact by accelerating the digitalisation of the luxury goods industry."

Frederic Chevallier, Managing Director, Kuehne + Nagel Ltd.
"For the logistics industry, capacity is still a challenge. It may only be resolved by the fourth quarter of 2022. If the new wave of Covid-19 cases continues, it will bring major disruption to the trade lanes between Asia – Europe and North America. Consumption levels in these regions will impact the recovery of the global supply chain. Finally, digitalisation and M&A are expected to continue in this industry in 2022."

Erdal Elver, President & CEO, Siemens Limited Taiwan
"We expect Taiwan to continue its above-trend growth as the global economic recovery continues. The expansion will moderate due to a higher comparison base and demand saturation from parts of the ICT sector and already-high commodity prices such as oil and metals. However, there is still high demand for 5G, AI, cloud computing for the semiconductor industry and machinery exports also maintain a healthy outlook. Local and foreign government policies for smart city development and the energy transition will also support infrastructure investments. A few headwinds remain, including supply bottlenecks, unfavourable currency exchange, and adjustment to monetary policies in reaction to inflation."

Bart Linssen, Managing Director, Enercon Taiwan Ltd.
"In the field of renewable energy, the addition of wind, solar and other renewable energy generation in Taiwan will continue to lag behind government plans. We can expect further delays in project completion this year. Meanwhile, Taiwan’s industry faces increasing pressure to have their operations powered by renewable energy to meet global carbon-neutral supply chain commitments and to avoid paying the European carbon border adjustment tax. There is insufficient renewable energy available to meet the demand. We see Taiwan’s manufacturing industry increasingly getting directly involved in the development of new renewable energy generation capacity in Taiwan. This looks likely to become a trend in 2022, and we expect that trend to give a boost to the renewables sector in Taiwan."

Francine Wu, CEO, Schroders Investment Management (Taiwan) Limited submitted this quote from her colleague Johanna Kyrklund, Schroders Investment Management Chief Investment Officer and Global Head of Multi-Asset Investment:

"In recent years, we compared the global economy to a ‘wobbly bicycle,’ where a lack of economic momentum left us vulnerable to being blown off course by any gust of wind. The pandemic forced governments to put stabilisers on the wobbly bicycle, allowing us some reprieve from cyclical volatility. Those stabilisers will be coming off in 2022 and the private sector will have to take on the baton of growth. We would describe the potential distribution of outcomes as ‘platykurtic,’ a more muted upside with elevated risks. In more simple terms, diversify your risk - this is not a time for big bets."

John Winter, Country Manager, Taiwan, Robert Walters
"2021 saw one of the most active job markets of the last 10 years both globally and locally. Technology recruitment was the biggest contributor to this with Taiwan having very high demand for technical candidates across almost all sectors but most notably in semiconductors and software development. We anticipate that this trend will continue throughout 2022 as long as the global economic recovery continues. Record hiring levels have not been confined to technology. We have seen a similar appetite for businesses to increase headcount in most sectors we cover including FMCG, manufacturing, healthcare and supply chain/ 3PL. A continuing challenge for Taiwan has been the restrictions on foreign talent entering the country due to Covid-19. This is challenging for companies to recruit key personnel from overseas, which is having a disproportionate effect on those industries requiring a global search for business-critical roles, such as wind energy."

Irene Feng, Managing Director, Fresenius Kidney Care Taiwan, Fresenius Medical Care Group
"The status of growth in the overall health industry in 2022 is likely to be static in the face of high reimbursement constraints and continuous price cuts. New drugs and technology are heavily reliant on self payments due to a lack of health budget coverage. Multinational healthcare companies are willing to collaborate with the government in bringing in new innovation and medical AI into Taiwan in alignment with the government’s wish to promote smart hospitals and medical AI. However, faced with pessimistic returns from such investments and little support from government reimbursement, companies will be hesitant to increase their investments in Taiwan."

Geopolitical outlook
There is a lot happening globally and regionally that could have an impact on Taiwan this year. Relations between the US and China remain tense. Russia is threatening Ukraine and countries in eastern and central Europe. The US faces the prospect of increasing civil strife and legislative gridlock. There is uncertainty in Europe as a new coalition government has just taken over in Germany and France’s presidential election is set for 10 April, to name just a few uncertainties there. Closer to home, we asked political commentators Ross Feingold and Brian Hioe what to expect in the year ahead for Taiwan.

Ross Feingold is Taipei based lawyer and political risk analyst who has over twenty years’ experience advising clients on doing business in Taiwan. He provided this comment:

"The past two pandemic years resulted in much positive news for Taiwan, whether the low Covid-19 case count, the importance of Taiwan’s tech sector in global supply chains, and Taiwan’s democracy when autocracy threatens democracy worldwide. The challenge for Taiwan in the next year will be to maintain a positive trajectory for the ‘Taiwan story’, despite the inclination to keep strict border controls, a two-year political season that includes local and national elections (and popular votes on constitutional changes or referendums), and an enhanced desire by US and European governments to support domestic technology research and design as well as domestic manufacturing including in semiconductors. The China challenge for Taiwan across the political, trade and security domains is of course another great challenge for Taiwan policy makers. To meet these challenges Taiwan’s leaders will need to prioritize prudent policy decisions over partisan or intra-party factional considerations."

We give the last word to Brian Hioe, a Taiwanese American writer, translator, the founding editor of New Bloom and a frequent Euroview contributing writer. He provided this comment:

"Taiwan is expected to continue to be caught between the US and China in terms of great power conflict, with the Biden administration likely to continue strong support for Taiwan through diplomatic visits and the like, and reprisals from China probable. In the meantime, Taiwan will seek to use strengthened relations with central and eastern European countries to try and entice western European countries into economic relationships that it hopes will lead to stronger political ties. As China’s threats against Taiwan continue, other Asian countries, particularly Japan, may find themselves pushed into taking a firmer stance on Taiwan in light of their own security concerns and historical relationship to Taiwan. As for President Tsai, she is expected to maintain the status quo position she has for the duration of her presidency, but she goes into the closing act of her second term with a strong position, given the results of the recent national referendum, and may be encouraged to make more assertive moves aimed at expanding Taiwan's diplomatic space because of this fact.

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