Economy grows at softest pace since Q3 2023 in the third quarter

GDP reading: GDP increased 4.0% on an annual basis in Q3 (Q2: +5.1% year on year), the softest growth since Q3 2023 but well above market expectations. The economy was largely driven by government spending and investment, as private consumption was fairly muted and net exports subtracted from growth. On a seasonally-adjusted quarter-on-quarter basis, economic growth gathered traction, picking up to 1.1% in Q3 from the previous quarter's 0.3% expansion and marking the strongest increase since Q4 2023.

Drivers: Household spending growth fell to 1.9% in Q3, marking the weakest expansion since Q1 2022 (Q2: +2.8% yoy) and likely weighed on somewhat by typhoon-related disruptions. Public spending picked up to a 3.9% increase in Q3 (Q2: +1.9% yoy). Gross capital formation was up 15.3% (Q2: 14.8%), linked to machinery and equipment investment by tech firms plus a strong housing market. On the external front, exports of goods and services growth accelerated to 8.7% in Q3 (Q2: +7.6% yoy). In addition, imports of goods and services growth picked up to 13.3% in Q3 (Q2: +10.2% yoy). As a result, the external sector subtracted from growth for the second straight quarter, and by a larger amount compared to Q2.

GDP outlook: Our Consensus is for year-on-year GDP growth to slow in Q4 due to a much tougher base of comparison, though growth rates will pick up in 2025, with the economy aided by ongoing strong investment and exports tied to the boom in global AI demand.

Panelist insight: On the outlook, United Overseas Bank’s Ho Woei Chen said: “Taiwan’s economy grew by 5.18% y/y in the first three quarters of the year. Looking ahead, there will be headwinds from the moderation in private consumption growth and negative net exports while the higher base of comparison will also contribute to the slowdown in headline growth rate. While the trend for exports remains positive, risks could emerge on the downside after export and export orders weakened in September.” Commenting on risks to the outlook, Nomura analysts said: “[The] GDP report suggests a potential risk of economic overheating, which could fuel inflation and housing prices again. While we believe weak consumption growth has helped temper such a risk of economic overheating, as evidenced by below-2% inflation, we continue to be vigilant of the risk that strong economic growth momentum could eventually lift private consumption, thereby pushing up demand-side inflation pressures.”

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