BMI Forecasts 3.0% GDP Growth For Taiwan in 2014
Weaker for a bit, stronger for a bit, and then back to a comparatively low trend rate. That is the BMI view of Taiwan's economy in three different periods: Q313 (actual), Q413 (estimate) and then 2014 as a whole (forecast). Third quarter GDP growth, according to preliminary data released in November, was poor. GDP was up by only 0.1% quarter-on-quarter, and by 1.6% on an annual basis. This rather stagnant performance was in line with weaknesses in trade, always critical for an open and outwardly-focused economy such as Taiwan. However, we are confident there will be a pick-up in the last quarter of 2013, based on a short-term bounce in the Chinese economy and the global tech industry cycle - Taiwan depends rather heavily on exports of semi-conductors and other related IT products. Unfortunately, we do not see this end-2013 strength running through into 2014. On the contrary, we think the Chinese economy will slow again as the Beijing government seeks to tackle imbalances, and foresee that the tech cycle will turn against Taiwan, potentially with a downwards inventory adjustment in global electronics supply chains. Two further factors also cloud the outlook for 2014. One is the qualitative change in the mainland China economy, where local manufacturers are shifting their focus away from production for export markets and towards meeting the needs of an increasingly sophisticated domestic consumer sector. This means, for example, that China is producing its own flat-panel TVs and therefore importing less from Taiwan. The second relevant fact is the way the local administration of President May Ying-jeou is getting bogged down in political infighting, a process which seems to be undermining its resolve to tackle reforms of pension and energy policies. The fiscal balance is coming under pressure and businesses are becoming cautious in advance of local elections, to be followed by presidential elections in 2016. Taking into account these factors, we estimate GDP growth in 2013 will be 2.1%, rising to 3.0% in 2014, which is below the trend rate of recent years.
The limited recovery in GDP and trade in 2014 will help to pull activity levels in the country's main ports back into positive territory. This is in contrast to 2013 when we estimate that throughput in some ports (such as Taichung and Keelung) actually contracted. Growth in 2014 will, however, remain very low in percentage terms. Broadly speaking, Kaohsiung - Taiwan's largest port - remains the most resilient, not least because it is attracting new investment. On the plus side, the policy of cross-straits integration is expected to continue as Taiwan's ports and shipping lines position themselves to work through a series of alliances and partnerships with mainland companies over the next few years.
Headline Industry Data
- 2014 Port of Kaohsiung tonnage throughput forecast to increase by 1.5% to 120.729mn tonnes, reversing a 1.5% estimated contraction in 2013. Over the medium-term to 2018 we project an annual average increase of 2.1%.
- Port of Kaohsiung container throughput forecast to grow 2.7% to 10.145mn TEUs in 2014, up from 1.0% growth in 2013; over the medium-term we project an annual average 3.4% increase.
- Port of Keelung will see marginal growth of tonnage, up by 0.6% to 68.766mn tonnes, after 1.5% contraction in 2013. Container traffic will gain 1.2% to 1.597mn TEUs, after a fall of 1.8% in 2013.
- 2014 total trade growth forecast to recover by 2.8% in real terms, after 1.8% growth in 2012.
Key Industry Trends
Kaohsiung Hopes LME Deal Will Help It To Compete: Taiwan's port of Kaohsiung is expected to add thousands of cargo tonnes per year to its existing capacity following its partnership with London Metal Exchange (LME). The port will become a merchandise delivery location for the LME. The move is likely to reduce base metal transportation costs and increase shipment logistics efficiency in the South East Asia and mainland China areas. Kaohsiung port is expected to compete with LME's 37 designated ports worldwide in the metal shipment business, according to Taiwan International Ports Corporation (TIPC). Taiwan's Premier Jian Yi-hua said that the deal showed how Kaohsiung was uniquely placed as a hub for ventures into the mainland China market. He expected the port to be used as an international metals warehousing transfer centre. Despite the good news, Hsiao Ding-hsun, chairman of TIPC, said that Kaohsiung Harbour should remain focused on adding value through service diversification to offset the decline in its annual cargo handling volumes. The port, he said, was planning to create two new container terminals with a total of 11 new deep-water wharfs between them, able to take total container capacity to 17mn TEUs per annum by 2019. Public and private investment in the terminals would exceed TWD120bn (US$4.07bn), Hsiao said.
NYK Takes A Stake In The Kao Ming Container Terminal: Japanese shipping company Nippon Yusen Kaisha (NYK) and its unit Nippon Container Terminals has acquired a 12.5% stake in Yang Ming's Kao Ming Container Terminal (KMCT) in Kaohsiung, Taiwan. The financial details of the transaction have not been revealed. KMCT, which started operations in 2011, will be able to handle four 14,000 twenty-foot equivalent unit vessels at a time from September 2014 following the completion of the second phase of expansion.
Trouble In Malta For TMT: The Taiwan owned 27,000dwt B Ladybug was impounded in Malta in October 2013 as a result of a court action by the local subsidiary of South Korea's Hyundai Heavy Industries (HHI). The ship was originally built in 2011 at Hyundai Samho. The car carrier vessel is owned by TMT, a company based in Taiwan. TMT had earlier entered Chapter 11 bankruptcy protection through a filing with a US Court in Houston. Under Chapter 11, a total of 27 of the company's vessels, including the A Ladybug and the C Ladybug, were protected from creditor action, but the B Ladybug was apparently not listed in the court papers, exposing it to the action taken in Malta. Earlier in October, TMT was reported to have defaulted on payments for 12 bulk cargo ships
Risks to Outlook
Slower growth in mainland China continues to be the main downside risk for Taiwan's shipping sector. As the mainland switches away from an export-led growth model to one that focuses more on internal demand, BMI believes that its long-term growth trend will begin to come down. While there will still be opportunities for Taiwan to benefit from mainland demand, they will be less dynamic.
Political risk also remains a factor. While Taiwan remains a stable, market-friendly country, the Ma Yingjeou KMT administration has been struggling in the opinion polls, and we have doubts about its ability or desire to tackle necessary structural economic reforms. At the root of the problem lies Ma's lack of political leadership and, at times, indecisiveness, particularly with regards to policymaking decisions. We caution that the widening political divide, if left unmended, will eventually hurt the progress of cross-strait relations, which will in turn impinge on Taiwan's structural growth prospects. Given the increasingly fractious political environment on the island, we do not expect to see much development in cross-strait economic and political relations in the coming years, at least until greater certainty about the country's political leadership can be established.