taiwan’s economic situation and outlook

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TAIWAN’S ECONOMIC SITUATION AND OUTLOOK

September 2021National Development Council

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CONTENTS

I. PREFACE

II. GLOBAL ECONOMIC SITUATION AND OUTLOOK

III. CURRENT DOMESTIC ECONOMIC SITUATION

IV. PROSPECTS FOR 2021

V. CONCLUSION

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I. PREFACE

• Taiwan’s Economic Situation and Outlook offers local and foreign

readers a summary of the current economic situation in Taiwan,

including economic growth, foreign trade, domestic demand, industrial

production, employment, and prices, in addition to the prospects for

2021.

• Real GDP expanded by 7.43% in the second quarter of 2021, slowing

from a revised 9.27% upturn for the first quarter as a sudden spike in

domestic COVID-19 cases that began in mid-May weighed on

consumption, however, exports, private investment and government

expenditure together muted decline in consumer spending caused by

level 3 control measures.

• With domestic demand gradually recovering from the recent local

COVID-19 outbreak, Taiwan's economy will grow by 5.88% in 2021, the

highest in 11 years.

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II. Global Economic Situation and Outlook

The Global Economy and Trade Revive Strongly

Based on forecasts of authoritative economic institutes, the globalGDP for 2021 is forecast to grow by over five percent.

The latest WTO Good Trade Barometer reading of 110.4 hits a recordhigh, reflecting current strong trade expansion. However, someforward-looking indices, such as new export orders, start to rise at adecreasing rate, which might indicate a deceleration in recovery.

5

95.5

87.6

84.5

100.7103.9

110.4

80

85

90

95

100

105

110

115

I II III IV I II

-2.9 -3.8 -3.4

6.05.4 5.7

2020 2021

Source: IMF, “World Economic Outlook,” Jul. 27, 2021.EIU, “Global outlook summary,” Aug. 16, 2021.IHS Markit, “World Overview,” Aug. 17, 2021.

2021 Global Economic Growth Forecasts WTO Good Trade Barometer Trends

Qtr.2020 2021 Yr.

Note：Below 97.5: growth substantially below trend.Value between 97.5 and 102.5: in line with the medium-termgrowth trends.Above 102.5: growth well above trend.Source: WTO

GDPGrowth(%, yoy)

-2.9 -2.3

0.5

12.2

III IV I II

-8.5 -7.3 -6.1

22.2

III IV I II

-4.0 -4.6

-1.3

13.6

III IV I II

-5.6

-1.0 -1.3

7.5

III IV I II

-5.8

-2.4

1.5

14.7

III IV I II

4.96.5

18.3

7.9

III IV I II-3.5

-1.8-0.7

10.3

III IV I II-7.4

0.5 1.6

20.1

III IV I II

-1.0 -1.1

1.9

6.0

III IV I II

2.7

4.5 4.7

6.6

III IV I II

Qtr.2020 2021 Yr.

U.S. U.K. Eurozone Japan Singapore

China Russia India S. Korea Vietnam

Major Economies Show A Robust Rebound

GDPGrowth(%, yoy)

Qtr.2020 2021 Yr.

Qtr.2020 2021 Yr.

Qtr.2020 2021 Yr.

Qtr.2020 2021 Yr.

Qtr.2020 2021 Yr.

Qtr.2020 2021 Yr.

Qtr.2020 2021 Yr.

Qtr.2020 2021 Yr.

Qtr.2020 2021 Yr.

Source: Official Websites of Countries/Economic Entity Above

The Rise of Trade Protectionism

Delta Variant Rocks the Whole WorldThe Delta COVID-19 variant has caused newoutbreaks in more than 132 countries. Evenlockdowns can’t stop the spread, forcing theworld to reorient strategies.

Road to Recovery under Uncertainty

Vaccine Inequality Broadens

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The US imposing tariffs on European nationsover digital taxes, together with the EU’sproposing of carbon tariff, are likely to set offa new wave of trade barriers.

While wealthy economies are eager to have abooster shot of vaccine, people in developingcountries can’t receive their first dose yet.

ExtremeWeather

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Natural disasters like flood,forest fire, and draught,from climate change, havecaused many casualties inmany countries, whichmay disrupt global supplychain.

Inflation Concerns

Prices have surged acrossadvanced economies. Thismay be a big concern interms of higher operatingcosts for enterprises as awhole. Central banks mayraise interest rates orreduce the scale of bondpurchases in response.

Road to Recovery under Uncertainty

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III. Current Domestic Economic Situation

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Foreign Trade Continues to Increase

Note: Since FY 2016, the general trade system has been applied for the compilation of external trade statistics, and the historicaldata has been revised to FY 2001.

Source: Ministry of Finance, Sep. 2021.

y/y, % The Growth Rate of Exports and Imports

month

year2019 2020 2021

Parts of electronic product+21.9%

Information, communication andaudio-video products +17.2%

In August 2021, Taiwan’s total exports increased by 26.9% year-on-year, buoyed by strong demand for high-tech products and rawmaterials as the global economy recovered.

26.9

46.3

-40

-20

0

20

40

60

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8

Export growth Import growth

11Source: Ministry of Economic Affairs, Aug. 2021.

y/y, %

2019 2020 2021

The Growth Rate of the Industrial Production Index

The Industrial Production Index (IPI) reported an annual increaseof 13.93% in July 2021, rising for the 18th consecutive month,with solid global demand for both tech and old economyproducts.

month

year

Electronic partsand components +16.80%

Chemical raw materialindustry +11.73%

Industrial Production to Grow Modestly

Basic metal +28.79%

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Retail Trade Shows Decline

In July 2021, as measures to contain COVID-19 outbreak reined inconsumer spending, retail trade sales decreased by 10.3% year-on-year, representing the second straight month of decline.

The Growth Rate of Retail Trade and Food Servicesy/y, %

-10.30

-38.80

-50

-30

-10

10

30

50

1

2019

4 7 10 1

2020

4 7 10 1

2021

4 7

Retail Trade Food and Beverage Services

Retail sale via mail orderhouses or internet +23.4%

Source: Ministry of Economic Affairs, Aug. 2021.

month

year

Motor vehicles andmotorcycles -10.9%

General merchandisestores -14.7%

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3.6

3.8

4.0

4.2

4.4

4.6

4.8

5.0

1 5 9 1 5 9 1 5

U n e m p l o y m e n tR a t e

S e a s o n a l l y - a d j u s t e du n e m p l o y m e n t r a t e

4 . 5 3

4 .36

Unemployment Rate Drops Slightly

The unemployment rate fell by 0.27 percentage points from amonth earlier to 4.53% in July 2021 as the domestic outbreak ofCOVID-19 continued to subside.

Source: DGBAS, Aug 2021.

%

Unemployment Rate

2019 2020 2021 year

month

The number of the unemployed decreasedby 31,000 from previous month.

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The CPI rose 2.36% year-on-year in August 2021, mainly because the index for

fruit and vegetables rose 3.6% and 35.22% due to agricultural damage caused by

heavy rain, and the index for fuel prices also rose 23.24% due to a relatively lower

comparison base.

However, the prices of fruit and vegetables are expected to stabilize with the

improved weather and as the comparison base moderates. The core CPI rose 1.33

%, well below 2 percent.

The WPI in August 2021, compared with the same month of 2020, increased

11.88%.

-0.09

0.15

1.11

1.25

2.04

3.84

6.51

-2 0 2 4 6 8

Miscellaneous

Health

Education & Entertainment

Housing

Clothing

Food

Transportation & Communication

%

The Annual Changes of Consumer Price Indices

Inflation Rose Moderately

Source: DGBAS, Sep. 2021.

2.36%

1.33%

2021/811.88%

-14

-11

-7

-4

0

4

7

11

14

2018 2019 2020 2021

% CPI Core CPI WPI

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In July 2021, the overall monitoring indicator continued to flashthe “red” signal, the total score decreasing two points to 38.

Monitoring Indicators Flash “Red” Signal

Note: The checkpoints for each component of the monitoring indicators were changed in July 2018, since they are subject to regular review andrevision every five years, but the component items remain the same. As for leading indicators, there have been some changes to thecomponents, such as “diffusion index of export orders” being substituted for “index of export orders”. Please see the link below for moredetails: https: //www.ndc.gov.tw/en/News_Content.aspx?n=4061A3F0B105B5AE&sms=E39F6CCF42B6E423&s=D1D76F75B2FF19C5

Source: NDC, Aug. 2021.

Monitoring Indicators

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IV. PROSPECTS FOR 2021

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2.51

0.35

4.26

5.15

9.27

7.43

3.314.01

2.18

3.744.56 4.19

0

2

4

6

8

10

Q1 Q2 Q3 Q4 Q1(r) Q2(p) Q3(f) Q4(f) Q1(f) Q2(f) Q3(f) Q4(f)

2020 2021(f) 2022(f)(3.12%) (5.88%) (3.69%)

Source: DGBAS, Aug. 2021.

As Taiwan’s COVID outbreak is gradually coming under control and numerousrelief policies take effect, private consumption is likely to recover in the secondhalf of 2021. In addition, the resurgence of global trade, dominance insemiconductor manufacturing industry and the emerging demand for newtechnological applications, as well as the capacity expansion of manufacturingreshoring, will all support Taiwan’s economic growth.

According to the latest DGBAS forecast, the real GDP is predicted to grow by5.88% and 3.69% in 2021 and 2022, respectively.

The Economy Expected to Remain Solid

Quarterly GDP Growth Rate (y/y)

%

quarter

year

forecast

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Real private final consumption fell by 0.41% in 2021Q2, mainly reflecting a slumpin consumption expenditure caused by local COVID-19 outbreaks. TheNationwide Level 3 epidemic alert from mid-May led to the contraction in serviceconsumption such as restaurants and hotels, public transportation, as well assome commodity consumption such as cars and clothing.

As COVID-19 local pandemic is controlled, consumer spending will pick up amideasing of restrictions and the introducing of the government’s relief and stimulusmeasures. Real private consumption is expected to grow by 1.36% and 4.63% in2021 and 2022, respectively.

-1.74

-5.21

-1.55 -1.25

2.27-0.41

-0.58

4.013.13

6.825.63

3.16

-7

-4

0

4

7


Private Consumption to Grow at a Slower Pace

The Growth Rate of Private Consumption (y/y)%

forecast


2020(-2.42%)

2021(f)(1.36%)

2022(f)(4.63%)

quarter

year

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Investment Expected to Remain Robust

The Growth Rate of Each Component of Fixed Investment Unit: %

Reshoring Taiwan’s overseascompanies

Accelerating investment ofsemiconductor industry

Investment in 5G infrastructure,offshore wind energy, airline

companies and container shippingcompanies expanding fleet capacity

The growth rate of fixed investment is expected to grow by 9.47%

in 2021, slowing to 2.67% in 2022.


FixedInvestment

PrivateEnterprises

GovernmentPublic

Enterprises

2019 10.17 11.00 8.35 1.75

2020 4.52 2.78 6.79 28.14

2021(f) 9.47 11.89 -4.46 6.69

Q1 (r) 11.98 13.77 -8.63 28.83

Q2 (p) 11.89 17.43 -7.03 -21.12

Q3 (f) 5.57 6.30 -4.81 19.90

Q4 (f) 8.77 10.40 -0.01 11.09

2022(f) 2.67 2.28 3.49 6.76

20

-2.09 -3.44

3.33

7.63

22.09 22.62

16.5212.15

4.18 3.32 5.45 5.82

-5

0

5

10

15

20

25


Exports to Sustain Strong Momentum Thanks to the resurgence of global trade and rising domestic

production capacity, the real exports of goods and services areforecast to grow by 17.93% and 4.75% in 2021 and 2022,respectively.


The Growth Rate of Real Goods and Service Exports (y/y)%

forecast

Emerging demand fornew technological

applications(5G, IOT and high

performance computing)

Capacity expansion brought bythe massive investment of

semiconductor manufacturersand reshoring oversea

companies

2020(1.58%)

2021(f)(17.93%)

2022(f)(4.75%)

quarter

year

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0.33 0.81 0.41 0.70 0.54-0.97 -0.48 -0.04 0.80 2.14 2.09 1.94

-11.25

-5.99

1.03

11.05 10.87 9.39

-12-8-404812

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1(r) Q2(p) Q3(f) Q4(f)

CPI WPI

With the continuing rise in international oil and base metals prices, the WPI is

expected to increase by 8.0% in 2021, an upward revision of 3.44 percentage

points from June’s forecast.

On the CPI side, it is forecast to increase by 1.74%, revised upward 0.2

percentage points from June, mainly reflecting rising gasoline and food prices.

Inflation Rate To Remain Stable


%

2019(0.56%)(-2.26%)

2020(-0.23%)(-7.77%)

2021(f)(1.74%)(8.00%)

forecast

quarter

yearCPIWPI

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Forecasts for Taiwan’s Economy

Note:1. DGBAS = Directorate-General of Budget, Accounting and Statistics, ROC (Taiwan); CBC = Central Bank of Republic of China (Taiwan); Institute of

Economics, Academia Sinica；TIER = Taiwan Institute of Economic Research, Taipei; CIER = Chung-Hua Institution for Economic Research, Taipei;TRI = Taiwan Research Institute；ADB = Asian Development Bank ; IMF = International Monetary Fund.

2. f = forecast

Real GDP(yoy, %)

Consumer Price Index(yoy, %)

2021 f 2022 f 2021 f 2022 f

DGBAS (2021.8) 5.88 3.69 1.74 0.89

CBC (2021.9) 5.75 3.45 1.70 0.92

IEAS(2021.7) 5.05 - 1.78 -

TIER (2021.7) 5.40 - 1.65 -

CIER (2021.7) 5.16 3.43 1.72 0.90

TRI (2021.7) 5.12 - 1.78 -

IHS Markit (2021.9) 6.0 3.2 1.74 1.47

ADB (2021.9) 6.2 3.0 1.5 1.1

IMF (2021.4) 4.7 3.0 0.9 1.2

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V. CONCLUSION

• According to IHS Markit’s latest forecast, while growth momentum isslowing with the spread of the COVID-19 Delta variant disruptingactivity around the world, the global economic growth rate is expectedto be 5.7% in 2021.

• On the domestic side, according to the latest DGBAS forecast, real GDPis projected to grow by 5.88% in 2021, revised upward by 0.42percentage points from the previous forecast. The recent domesticCOVID-19 outbreak took a toll on consumer activity, but failed toadversely affect the manufacturing and export sectors. In addition, Themain economic institutions forecast that Taiwan’s real GDP growth ratefor 2021 will be 5.0%-6.2%.

• With the COVID-19 outbreak contained and the strict protocols liftedgradually in late July, the government plans to issue ”QuintupleStimulus Vouchers". It is hoped the new voucher program will stimulatethe economy on a wider scale, and bring back business to help those hithard by the pandemic.

taiwan’s economic situation and outlook

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