UNLIKE ON THE other side of the Taiwan Strait, Taiwan’s GDP shrank 0.9% year-on-year in the fourth quarter of last year, taking 2022’s full-year growth to 2.4%, a marked deceleration from 2021’s 6.5%
The fourth quarter was the first year-on-year quarterly contraction since the first quarter of 2016 and the largest since the global financial crisis in 2009.
Inflation, interest rate hikes and the dip in tech demand in Taiwan’s Western markets are suppressing demand for exports from the trade-dependent island. At the same time, Beijing’s zero-Covid policies, only abandoned during the fourth quarter, continued to disrupt business operations and suppress consumer demand on the mainland, which takes a quarter of Taiwan’s goods exports.
The 8.6% fall in total exports knocked 2.6 percentage points off GDP growth, muting the stimulative effect of a 3.1% increase in public spending in the fourth quarter.
The revival of China’s economy in 2023 should give Taiwan a strong boost, especially in the second half of the year, assuming the mainland’s Covid waves pass without significant economic mishaps and stimulus measures kick in.
The economy should return to growth in the first quarter, although the risks are to the downside.
There is still roughly a year before Taiwan’s next presidential and legislative elections, so that should be ample time for the economy to recover.
With Taiwan’s ruling party picking a self-described ‘political worker for Taiwanese independence’, William Lai, as its next chairman, thus putting him in line to be its candidate to succeed the term-limited President Tsai Ing-wen, the economy is unlikely to be the primary election issue.