The island is one of the most open of the region's exporters, with an exports-to-GDP ratio of 74 percent, compared with South Korea's 49 percent and China's 29 percent, according to figures from RBS Global Banking and Markets.
That openness, though, makes Taiwan extra-vulnerable to falls in external demand. And with data for November showing the slowest growth in exports and in future orders for them in two years, the possibility of a harsh 2012 looms large.
"If you just look at the export dependency, Taiwan is very small and one of the most open, so by that token it is the most vulnerable to an external-led downturn," said Silvia Liu, economist with UBS.
"For now, it is kind of a bread-and-butter slowdown but of a more severe magnitude," she said. "But obviously that can be amplified if we have an event shock like that in 2008 and 2009."
Should that happen and Taiwan be deprived of the impetus that exports give, it would struggle to grow. The economy has low levels of investment, as that is closely tied to exports, while slow wage growth and high consumer indebtedness keep a lid on expansion of domestic demand.
December Export Order Contraction?
Orders for Taiwan's exports, a leading indicator of demand for Asian goods, grew at only 2.5 percent in November, and the government raised the possibility they could contract in December, auguring poorly for actual exports.
Actual exports grew only 1.3 percent in November, well below the 7.6 percent forecast in a Reuters poll. All major destinations, United States, Europe and China, contracted, with Europe dropping a hefty 21.9 percent from the previous year.
Part of the problem is that Taiwan is one of Asia's top makers of hi-tech goods for overseas customers, such as iPads and iPhones for Apple -- gadgets that also are among the most popular Christmas gifts in the U.S., where consumer confidence has risen recently.
That makes Taiwan dependent on the global technology cycle with its vagaries in demand.
Firms such as HTC Corp, the world's No.4 smartphone maker and one of Taiwan's few global brands, and UMC , the world's No. 2 contract chipmaker, are facing a combination of poor demand, over-supply and falling prices.
Both reported declines in sales in November.
"The key risk comes from a downturn of ICT (Information and Communications Technology) which may result in global destocking," Raymond Yeung, senior Greater China economist at ANZ, wrote in a report. He noted that after the dot.com bubble burst in 2001, Taiwan had six straight quarters of destocking.
No Independent Domestic Drivers
With Taiwan's economic structure geared towards exports, there is little to carry it through tough times should exports falter.
"Trade and investment are inter-related in Taiwan. You don't have an independent driver," said UBS's Liu. "So, if exports are slowing down, the domestic economy will be sluggish as well."
With many exported goods made at Taiwanese-owned factories in China, where wages are lower, productivity in Taiwan is likely to remain low. For similar reasons, Taiwan's jobless rate is showing little improvement, staying above 4 percent all year.
In a report dated Dec 1, Goldman Sachs noted high consumer indebtedness and the possibility of a correction in property prices, further lowering the chances of domestic factors functioning as growth drivers.
One bright spot though is wage growth, which averaged 3 percent in the first nine months of this year, compared to South Korea's 0.7 percent growth, according to RBS data.
Taiwan's government, which faces an election in January against a resurgent opposition that has attacked its economic record, recently outlined plans to help the economy by boosting spending, though it failed to provide details.
It has also been cautiously c
