Weak service sector constrains Taiwan's economy

Subject

Taiwan's service sector.

Significance

The services sector has assumed a dominant role in Taiwan's GDP (63%) and employment (59%). However, this reflects hollowing out of the manufacturing sector rather than a strengthening of services. Like the manufacturing sector, Taiwan's services sector is characterised by low profit margins and salaries, and dominated by small and medium-sized enterprises (SMEs) with weak R&D capability.

Impacts

• Limited salary growth in the services sector will restrain private consumption.
• The incoming government's industrial policies will create demand for services connected with several advanced manufacturing sectors.
• The FTAs the new government seeks with advanced countries may help reinvigorate Taiwan's uncompetitive, inward-looking services sector.