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Taiwan recorded buoyant GDP growth of 8.2% year-on-year in the
first quarter of 2021, helped by rapid growth of electronics
exports to key markets, notably the US and China. Taiwan's economy
has been resilient to the impact of the global Covid-19 pandemic,
with continuing low levels of virus cases having helped to underpin
domestic demand. Meanwhile rapid expansion in global electronics
new orders since mid-2020 have helped to drive buoyant export
growth, reflecting the dominant role of electronics products in
Taiwan's manufacturing output and exports.
The combination of Taiwan's success in controlling domestic
Covid-19 pandemic cases combined with rapid growth in exports
resulted in Taiwan recording positive GDP growth of 3.1% in 2020.
Helped by the strong export outlook for Taiwan's electronics
sector, GDP growth rate is forecast to strengthen further to 4.6%
in 2021, which would be the fastest pace of economic expansion
since 2014.
Buoyant GDP growth in first quarter 2021
The Taiwan is in the unique position of having actually recorded
a slight strengthening in GDP growth in 2020 compared with 2019,
despite the severe global recession caused by the Covid-19
pandemic. Meanwhile almost every other economy in the world either
plunged into recession or experienced a sharp growth slowdown in
2020, due to the economic shockwaves of the global pandemic.
Economic growth momentum improved further in the first quarter
of 2021, with Taiwan's GDP growth up 8.2% year-on-year, boosted by
base year effects from the pandemic-impacted first quarter of 2020.
Economic momentum strengthened compared with the fourth quarter of
2020, when GDP rose by 5.1% y/y. Global electronics demand remains
buoyant in key markets in the first half of 2021, with strong
capital investment spending planned by Taiwan's semiconductor
manufacturing firms.
Taiwan's exports rose by 27.1% y/y in March 2021, reflecting the
strength of global electronics new orders. Taiwan's exports to
mainland China and Hong Kong SAR rose by 35.5% y/y in March, while
exports to the US were also buoyant, growing by 34.7% y/y.
Driven by strong global electronics orders as well as the
rebound in global auto production, Taiwan's electronics and auto
components manufacturing output has recorded rapid expansion.
Taiwan's industrial production rose by 16.8% y/y in March,
according to data from Taiwan's Ministry of Economic Affairs.
The IHS Markit Taiwan Manufacturing Purchasing Managers' Index
(PMI) climbed further in April, rising to 62.4, compared with 60.8
in March. This was the eighth successive month of expansion.
Supporting the improvement in the headline index was a sharper
increase in overall new work. Total sales expanded at the steepest
pace since March 2010, with companies commenting on robust demand
both at home and abroad as market conditions continued to recover
from Covid-19. Moreover, export orders expanded at the sharpest
rate for over a decade.
However, material shortages and transportation delays drove a
fresh record increase in suppliers' delivery times. This
contributed to a rapid increase in average input costs, which in
turn drove an unprecedented rise in prices charged.
Global electronics sector boosts Taiwan's
exports
The pandemic-driven surge in global electronics demand was a key
factor underpinning Taiwan's strong economic performance in 2020,
as the global shift to remote working and online shopping drove
rapid growth in demand for computers, home electronics and
smartphones. Despite the pandemic, which resulted in a sharp slump
in world trade, Taiwan's exports actually rose by 4.9% y/y in
calendar 2020, mainly due to strong exports of electronics, notably
semiconductors. A key factor supporting buoyant electronics demand
was strong exports to mainland China and Hong Kong SAR, which rose
by 14.6% y/y in 2020, accounting for around 44% of Taiwan's total
exports.
In the first half of 2020, Asian electronics production had
suffered severe supply disruptions and slumping global demand due
to the pandemic and lockdowns. However, the situation for Taiwan's
electronics sector has now completely reversed, with the strong
rebound in global electronics demand continuing in early 2021, this
has created supply bottlenecks for Taiwan's electronics
manufacturing firms, notably in the semiconductors industry, where
Taiwan is a key global source of production. Global shortages of
semiconductors having already resulted in disruptions to auto
production for some major auto manufacturers during the first half
of 2021.
Underscoring the strength of the recent electronics upturn, the
headline IHS Markit Global Electronics PMI rose to 59.9 in March,
up from 57.8 in February. The latest reading was the highest for 21
years, with new order growth accelerating sharply. The new orders
index from the PMI survey rose from a low of 35.0 in May 2020 to a
level of 59.7 in March 2021, its highest since November 2013. The
health of all four monitored sub-sectors improved markedly in
February, led by the communications category.
The new orders index from the PMI survey rose from a low of 35.0
in May 2020 to a level of 59.7 in March 2021, its highest since
November 2013, as global electronics new orders have rebounded with
the recovery of consumer demand in key markets.
The near-term pricing outlook for the remainder of 2021,
according to IHS Markit Pricing & Purchasing analysis for
semiconductors and components generally, is that supply shortages
are likely to continue to translate into price escalation. Printed
circuit board assemblies are the most severely affected, but
semiconductors, bare printed circuit boards, resistors, capacitors
and connectors will all see price pressure. (See "Prices: Pricing
Analysis - Semiconductors", by IHS Markit Pricing & Purchasing,
1st April 2021.)
In 2022, according to IHS Markit Pricing & Purchasing,
moderating demand for electronic components and improving
semiconductors production is expected to bring supply and demand
closer to balance and lead to some price relief. Specific
categories will show some resilience in pricing given the changing
demand landscape. For example, the expansion of electronics in
light vehicles will keep pressure on certain commodity electronic
components.
Taiwan faces semiconductors shortages as demand
soars
Taiwan's exports of electronics products have surged in the
first quarter of 2021, rising by 24.5% y/y in March. This reflects
strong global demand for computers, TVs and auto electronics,
contributing to a severe shortage of semiconductor chips that has
developed in recent months.
Chip stockpiling during 2020 due to US government sanctions on
certain Chinese technology companies have also contributed to the
shortages. Global auto manufacturers as well as smartphone
producers are among the industry segments that have been impacted
by these shortages. The US Department of Commerce added seven
Chinese supercomputing firms to its entity list in early April
2021.
Global auto manufacturers as well as smartphone producers are
among the industry segments that have been impacted by
semiconductors shortages. According to IHS Markit Automotive
research, vehicle manufacturers are finding increased disruption to
the supply of systems using semiconductors in the first four months
of 2021. Many automakers worldwide have reported disruptions to
production due to shortages of semiconductors, including Ford, VW
Group, GM, Honda and Mazda.
According to IHS Markit Automotive research, reports of
disruption within the supply chain of semiconductors to the
automotive sector began in late 2020 and have continued into the
second quarter of 2021. (see IHS Markit Automotive, 3rd May 2021,
"Semiconductor Supply Issue: Light Vehicle Production
Tracker").
The extent of the shortages of critical electronics components
has become so severe that high level consultations have been held
with Taiwan involving key industry bodies as well as government
officials from major industrial economies including the US and
Germany. Taiwan Semiconductor Manufacturing Co. (TSMC) also joined
the technology companies that participated in the White House
Summit on 12th April on semiconductors shortages and supply chain
vulnerabilities.
Global semiconductors shortages have also been impacted by
temporary supply disruptions to semiconductors production in Texas
due to power outages in February as a result of severe weather, as
well production disruptions in Japan due to a fire in a Renesas
Electronics semiconductors plant in mid-March.
The shortage of semiconductors has driven up capital expenditure
plans, with Taiwan's TSMC, the world's largest chipmaker, having
announced plans to increase capital spending on production and
development of advanced chips to a range of USD 25 billion to USD
28 billion in 2021, a 60% increase on 2020. TSMC plans capital
expenditure of USD 100 billion over the next three years to
increase semiconductors capacity. A USD 12 billion investment in
new production capacity in Arizona has been announced, with
additional expansion in the US expected.
Taiwan's UMC, which also manufactures chips, in operating its
semiconductors plants at full capacity, and plans to lift spending
on new capital equipment by around 50% in 2021 in order to increase
capacity.
A key risk to the near-term semiconductors production outlook in
Taiwan is from the severe drought that is impacting on the economy.
Drought conditions are estimated to be the worst for 56 years, and
have resulted in water restrictions in some areas, including in a
region that is a key hub for semiconductors manufacturing.
Semiconductors plants have very high water consumption
requirements, and although most plants have some water storage
facilities, there is a risk of water supply shortages that could
disrupt production if significant rainfall does not occur during
the rainy season.
Taiwan economic outlook in 2021
Taiwan has been one of the world's most resilient economies
during the pandemic-triggered recession of 2020. Economic
indicators at the beginning for 2021 signal improving growth
momentum for the Taiwanese economy over coming months, as the world
economy and global trade rebounds during 2021. According to the
latest IHS Markit survey of business conditions in Taiwan, the
12-month outlook for manufacturing production rose to its highest
since April 2014 at the start of 2021, reflecting strengthening new
orders. Taiwanese manufacturers were highly confident that output
would rise over the next year. largely driven by expectations of a
sustained and strong post-pandemic recovery both at home and
abroad.
At the outset of 2021, global electronics demand has recovered
significantly from the lows of the first half of 2020 when
lockdowns disrupted production and consumer spending. Strong
economic momentum in the US and China have been key drivers of
rapid growth in Taiwan's exports in early 2021. With an improving
global economic recovery expected during the course of 2021 as
Covid-19 vaccines are progressively rolled out, global demand for
electronics products is expected to be strong this year.
The impact of the pandemic has accelerated the pace of digital
transformation due to the global shift to working remotely, which
has boosted demand for electronic devices such as computers,
printers and mobile phones. The easing of lockdowns in many
countries has also triggered a rebound in consumer spending,
helping to boost demand for a wide range of consumer electronics.
Meanwhile auto demand has also shown a rebound after slumping
during the first half of 2020, which is boosting demand for auto
electronics.
The medium term economic outlook is also supportive for the
electronics industry, with sustained strong world economic growth
forecast over 2022-2024. The outlook for electronics demand is also
supported by major technological developments, including 5G rollout
over the next five years, which will drive demand for 5G mobile
phones. Demand for industrial electronics is also expected to grow
rapidly over the medium term, helped by Industry 4.0, as industrial
automation and the Internet of Things boosts rapidly growth in
demand for industrial electronics. These factors underpin the
medium-term outlook for Taiwan's electronics sector exports and
capital expenditure, which will be key drivers of economic
growth.
Rajiv Biswas, Asia Pacific Chief Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.