The economy has surprised on the upside so far in 2019 as unexpectedly strong real exports and investment boosted GDP growth to +2.4% y/y in Q2, after +1.8% in Q1. Higher tariffs on mainland Chinese exports have prompted Taiwanese companies to move investment and production back home from the mainland. As a result, exports to the U.S. have been boosted, in particular by surging shipments of information and communication products. Hence, USD-denominated exports of goods fell at a slower pace of -1.2% y/y (or a +2.3% y/y gain in TWD) in Q2 and increased by +1.2% y/y in July, compared with a -4.7% y/y drop in Q1. Coupled with a +19% y/y rise in tourist arrivals, this resulted in a +4.1% y/y expansion in real exports of goods and services and a +6% increase in fixed investment in Q2. That said, the recent export recovery may prove short-lived amid increasing external uncertainties, including the prolonged uncertainty in U.S.-China trade tensions with new tariffs added as well as the trade conflict between Japan and South Korea. We forecast full-year growth of +1.8% in 2019 and +1.1% in 2020.
