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Taiwan’s economy has been among the biggest beneficiaries of a rebound in global trade. Taiwan’s export orders extended their year-on-year gains for the 16th straight month in October, defying regional headwinds for producers in the region.
Data from the Ministry of Finance showed that Taiwanese companies sold more than $40 bn worth of goods in a month for the first time in October, up 24.6% from the same period last year. According to the government officials, Taiwan’s overseas shipments are likely to rise between 22% and 26% in November, while the full-year export forecast is likely to surpass $400 bn.
Chips, electronics, metals from the island were the main drivers for buoyed export demand, as the world emerged from the pandemic led lockdowns. Meanwhile, the year-end holiday and festival season also aided sentiment as global demand for semiconductors, gadgets and metals continued to grow, benefitting Taiwan – a major hub for trade and manufacturing. The Taiwanese government expects domestic production of electronics to scale up to $350-400 bn by 2025.
According to IHS Markit, Taiwan’s economy has fared quite well through the pandemic and even with Covid-19 restrictions. In October, Taiwan’s IHS Markit PMI logged a 0.5 point improvement to 55.2. In the meanwhile, vaccination rates are also progressing well in the country, among other Asian nations, which has led to the opening up of many manufacturing bases. Vaccination rates could potentially reach 80% in key manufacturing nations such as Taiwan by January 2022, as per UBS calculations.
Taiwan’s technology ecosystem
The export growth outlook for Taiwan continues to be supported by buoyant tech demand, especially for its foundry industry. Despite political challenges from China, Taiwan has definitely benefited from a significant backlog in the global semiconductors industry, which has led to extremely tight supply conditions across major end-products.
Taiwan’s technology advantage over rival exporting economies is on the back of its major tech giants, which have been scrambling to keep up with rising global demand. To put in perspective, Taiwan’s two biggest companies, – Taiwan Semiconductor Manufacturing Co. (TSMC) – the world’s largest contract chipmaker and the main assembler of Apple Inc. flagship iPhone – Hon Hai Precision Co. – have been the major contributors to Taiwan’s export growth.
According to the US-based market research firm IC Insights, the overall semiconductor market is expected to grow 23% this year. Taiwanese chipmaker company MediaTek is expected to report 60% revenue growth this year, while TSMC is forecasted to register sales growth of 24% for the year.
On the other hand, Hon Hai has topped a Hurun list of the top 100 companies from outside mainland China that has contributed most to its economy. However, as industry-wide component shortages caused a slowdown in production, Hon Hai, saw a 10.1% fall in sales in October from a year earlier, even when demand remained healthy.
Taiwan export outlook: further headwinds
As per IHS analysts, a scenario that results in further disruption or delays to Taiwan’s semiconductors production in the near term could create further shockwaves to the global manufacturing supply chain.
Annabel Fiddes, Economics associate director at IHS Markit explained that manufacturers struggled to meet the upturn in orders as “shortages and supplier delays constrained output growth”.
Lloyd Chan, Senior Economist at Oxford Economics explained that goods exports remained strong in October, but grew at a slower pace than in September, due to slower exports to China.
“As the year-end holiday season approaches, demand for consumer goods will help further prop up exports,” he added. Chan further stated that slowdown in China’s economy and supply-chain bottlenecks are the near-term headwinds for Taiwan’s economy.
Analysts also suggested that the supply chain disruption in the global chip sector is also improving, with inventory-shipment ratios tuning up. Meanwhile, the sudden rise in export demand may also add pressure on the local currency to appreciate further.
