Population 23.434 million
GDP 466.054 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
10.7 |
4 |
1.3 |
2 |
|
Inflation (yearly average) (%)
|
1 |
1.4 |
2.1 |
2 |
|
Budget balance (% GDP)
|
-3.3 |
-2.2 |
-2.8 |
-2.8 |
|
Current account balance (% GDP)
|
9.3 |
8 |
6.9 |
7.3 |
|
Public debt (% GDP)
|
32.1 |
40.5 |
41.7 |
40.9 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Strong external financial position
- Support for R&D via public spending
- Consensus on democratic benefits
- World 4th largest electronics producer
- Improved relations with mainland China
WEAKNESSES
- Foreign trade too concentrated on mainland China and the United States
- Massive relocations weakening industrial employment
- Services sector’s lack of competitiveness
- Infrastructure lagging behind other advanced Asian economies
RISK ASSESSMENT
RISK ASSESSMENT
Recovery expected in 2013
After the significant rebound in 2010, growth slowed in 2011-2012 due to the tightening of economic policies and the slowdown in international trade. Activity could recover slightly in 2013, but GDP growth will remain below potential. Exports are not expected to be very dynamic due to the expected recession in the euro zone and weak growth in the United States, the island’s main trading partner, if one considers that about 70% of Taiwanese exports to Mainland China are then re-exported to the U.S. Against this backdrop, investment will be less dynamic than before the financial crisis, particularly in the electronics and capital goods sectors, which account for over 50% of foreign sales. However, the Economic Cooperation Framework Agreement between Beijing and Taipei (ECFA) should continue to stimulate exports of machines and agricultural produce to mainland China, thanks to customs duty exemptions and reductions. Moreover, the ECFA should boost strong services sector growth, thanks to increased tourism from mainland China resulting from the introduction of direct flights between the two territories. Increasing tourist arrivals are expected to support employment, so household consumption will continue as the main growth driver and will benefit retail trade.
Meanwhile, inflation rose slightly in 2012 due to the reduction of oil and electricity subsidies and the inflationary impact of the American Federal Reserve’s 3rd quantitative easing programme. Inflation will remain stable in 2013, with the rise in regulated electricity prices planned for December 2012 postponed to October 2013.
Sound financial position
The budget deficit widened slightly in 2012 within the framework of elections and will stay at the same level in 2013, President Ma having announced higher social spending. In this context, public debt will remain sustainable.
The current account surplus fell in 2012 due to poorer European and American economic performance. It could increase slightly in 2013 in a context of a weak recovery in international trade, growing numbers of tourist visitors from Mainland China and significant revenues linked to the repatriation of profits and dividends by Taiwanese investors abroad.
Meanwhile, the post-crisis period has been marked by massive capital inflows betting on the appreciation of the new Taiwanese dollar. In this context, the Financial Supervisory Commission decided to introduce several measures aimed at controlling capital inflows, particularly a measure prohibiting non-residents from holding deposits. These capital controls were maintained in 2011-2012. Despite the concerns of Taiwanese exporters hit by the appreciation of the new Taiwanese dollar, capital controls are not likely to be intensified in 2013, with those in favour of introducing a tax on short-term capital inflows in a minority. However, the Central Bank is expected to continue intervening on the foreign exchange market to limit the appreciation of the currency. In this context, it is accumulating foreign exchange reserves, which will remain at a very high level in 2013, protecting the island from a foreign exchange liquidity crisis.
Continuity of economic policies and stronger cooperation with Mainland China after the January 2012 election
The political situation is expected to remain stable after President Ma Ying-Jeou was re-elected for a second four-year term in January 2012. Moreover, the summer parliamentary elections were a success for the Kuomintang. In this context, the rapprochement policy with Mainland China (Economic Cooperation Framework Agreement between Beijing and Taipei, re-establishment of air, sea and mail links, opening of the Taiwanese stock market to Mainland Chinese investors and possibilities for banks on both sides of the straits to establish subsidiaries in the other territory) should endure, with the economic policies embedded in that continuity.
