July 31, 2018 / 9:27 AM / a year ago

UPDATE 1-Strong exports lift Taiwan’s Q2 growth, but economy faces headwinds

* Taiwan Q2 GDP +3.29 pct y/y, fastest pace since Q1 2015

* Exports, private investment beat expectations - stats agency

* Higher tariffs could be an 'assault' on exports - economist

TAIPEI, July 31 (Reuters) - Taiwan's economic growth stayed solid in the second quarter, data showed on Tuesday, as exports rose strongly, but the outlook is uncertain because of clouds over global trade and signs that technology demand is softening.

Second quarter gross domestic product expanded 3.29 percent from a year earlier, preliminary data from the statistics agency showed.

That was more than the 3.00 percent forecast in a Reuters poll and the first quarter's 3.04 percent pace.

Capital Economics said Taiwan's growth is strong "for now" - the latest number is the fastest since 2015's first quarter - "but with external headwinds increasing, we expect the economy to soften over the second half of the year and into 2019."

From the first quarter, the economy grew a stronger seasonally adjusted 3.08 percent in April-June.

In the second quarter, exports were buoyant, which might reflect stepped-up shipments ahead of the July 6 effective date of new United States tariffs on $34 billion worth of imports from China, and Chinese countermeasures.

In its statement on the initial second quarter data, Taiwan's statistics ministry did not mention tariffs, or make any comment on the outlook now for trade-reliant Taiwan.

"Benefitting from the global economic stable growth, the momentum from new technological applications, as well as machinery demand hitting peak season, second quarter product exports rose 11.22 percent in US dollars," it said.

Woods Chen, chief economist at Yuanta Investment Consulting, said that while growth beat expectations in April-June, "we have to monitor the US-China trade war's developments".

In the second quarter, strong exports "could possibly be because manufacturers shipped out goods early, but if tariffs increase, this could be an assault on exports," he said.


In May, the government nudged up its full-year 2018 growth projection to 2.60 percent from 2.42 percent forecast earlier in February.

For 2017, full-year GDP growth was 2.86 percent, according to the statistics agency.  

The economy got a major boost last year from launches of new smartphone models of Apple Inc's iPhone and other tech gadgets, but the electronics cycle is hitting a peak.

Some economists are questioning the economy's ability to maintain its vigour, given indications that the electronics cycle is peaking and as Asian exporters confront increasing trade protectionism.

Taiwan's export orders surprisingly shrank in June, which an official called "unusual" and some analysts said could mean the U.S.-China trade war was already casting a shadow over the island's second half growth outlook.

Orders for trade-dependent Taiwan fell 0.1 percent from June 2017 to $40.31 billion. In May, orders rose a robust 11.7 percent from a year earlier.

Taiwan's export orders are a leading indicator of demand for Asia's hi-tech gadgets and other shipments, and typically lead actual exports by two to three months. (Reporting by Jeanny Kao; Writing by Jess Macy Yu; Editing by Richard Borsuk)

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