beyondbrics

Having an economy as reliant on high-tech exports as Taiwan’s was seen as a bad idea last year, as the pain of the global economic downturn was doubly felt by Taiwanese companies who were present at nearly every stage of the technology supply chain. As a result, Taiwan’s economy shrank by a record 10 per cent at the beginning of 2009.

Now the story is reversed, as the island is enjoying outsized benefits from the rapid recovery in the tech sector.

Taiwan, which announced a 12.5 per cent year-on-year growth in the second quarter on Thursday, is now expecting a China-like 8.2 per cent growth in its economy for the full year this year. This would be the fastest annual growth since 1980.

Shih Su-mei, head of the Directorate General of Budget, Accounting and Statistics, said Taiwan is showing strong economic growth “because the improving global economic conditions are especially beneficial to export-oriented countries.”

“Emerging markets around the world are also growing quickly, which would boost their demand for electronic products,” Ms Shih added.

Taiwan’s economy had already surpassed its pre-crisis size at the end of last year. While exports had powered the early stages of the economic recovery, recent months saw the domestic economy benefiting from investments in new factories by some of Taiwan’s biggest companies.

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s biggest contract chipmaker, is the most striking example with plans to spend a whopping $5.9bn this year to expand its production capacity in Taiwan.

“Taiwan has staged an economic recovery which seemed impossible one year ago,” Tine Olsen, economist at Moody’s Analytics, said. While there has been a recent slowdown in exports and industrial production, these “are not evidence of economic growth stalling, but rather that the economy is cooling to sustainable growth levels,” she said.

That is not to say, however, that there are no risks to the Taiwan economy. The government is expecting growth in the second half to moderate to just 4 per cent higher than a year ago, and Ms Shih pointed to potential downward impact on the official forecasts should consumer spending slows down in China and the US.

Still, for an economy that was down in the dumps just last year, there are plenty of reasons to feel cheerful.

Additional reporting by Chen Yu-ting

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