EDITORIAL: Data gives murky economic forecast

The country’s economic growth for the second quarter of the year remained below expectations at 3.08%, slower than the 3.14% recorded in the previous quarter, the General Directorate of Budget, accounting and statistics (DGBAS). in the April-June quarter, it missed the agency’s May forecast by 3.31% and marked the country’s slowest rate of expansion since the second quarter of 2020, when COVID- 19 hit Taiwan for the first time.

Growth in the second quarter of this year was mainly driven by a 9.43% increase in gross capital formation, a 5.86% gain in government spending and a 2.96% increase in private consumption. However, exports of goods and services increased by 4.31% in the last quarter compared to the previous year, compared to an annual growth of 8.81% in imports of goods and services, which led to a decline net exports (exports minus imports) of 1.55 percentage points of GDP growth in the quarter and indicating the weakest performance since the first quarter of 2016, which the DGBAS attributed to the effects of the COVID-19 lockdowns in China and the slowdown in consumer electronics demand.

A closer look at the DGBAS data shows that the economy lost momentum in the last quarter in seasonally adjusted terms. On a seasonally adjusted quarterly basis, GDP contracted for the first time in a year, down 0.74% last quarter, or down 2.93% on a seasonally adjusted annualized rate basis , raising concerns about whether the economy would continue to lose momentum. this trimester.

Other economic data shows warnings of a slowdown in momentum ahead. Export orders and industrial production in the second quarter moderated from the previous quarter, while the official manufacturing purchasing managers’ index slipped last month to a contraction for the first time in two year. The leading indicators index added to concerns over the continuity of economic growth as the trend-adjusted index, which seeks to predict the economic landscape in the next six months, posted a decline for the eighth consecutive month in June.

The index of leading indicators fell 1.29% in June, after falling 3.42% in May and falling 1.87% in April. Of the seven components that make up the leading indicators, only imports of semiconductor capital goods showed an increase in June, according to data from the National Development Council. In June, the index of leading indicators had posted a total decline of 5.58% since November last year, indicating a potential slowdown on the economic front. Although it is premature to interpret the trend as indicating an economic recovery, the results deserve careful attention.

The IMF last month cut its global growth forecast to 3.2% this year from 3.6% in April and warned that risks from high inflation and Russia’s invasion of Ukraine were materializing. For Taiwan, an acceleration of interest rate hikes by the central banks of major economies to fight inflation would weigh on the country’s growth prospects, and the growing risks to the Chinese economy are also not a good thing. bodes well for Taiwanese exports, while rising geopolitical tensions across the Taiwan Strait raise concerns about regional supply chain disruptions.

The outlook for the domestic and global economy has darkened in the second half and challenges are likely to emerge at any time. Beijing has imposed several trade restrictions against Taiwanese food and agricultural products in retaliation for US House Speaker Nancy Pelosi’s visit to Taipei. Nevertheless, these measures are expected to have a limited effect on Taiwan’s overall economy. Nonetheless, heightened uncertainty about weakening global demand for tech products poses greater short-term concern, as it would have significant implications for the export-driven domestic economy.

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