Business outlook for 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."