Coronavirus: Taiwan upbeat on 2020 growth as electronic exports jump, island stays lockdown free

24-Apr-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

The Taiwanese government is forecasting that the island’s economy will grow by 2 per cent this year, better than virtually any other developed economy in the world, in large part because of its success in combating the Covid-19 pandemic without having to resort to extreme containment measures that hurt business activity.

In addition, foreign demand for the island’s signature hi-tech products has risen strongly due to the increase of videoconferencing and online activity to support work-at-home and social distancing guidelines around the globe.

Still, if the government’s growth forecast sounds high, it probably is, economists warn. The International Monetary Fund, for instance, is projecting Taiwan’s economy to contract by 4.0 per cent this year.

Even so, the self-ruled island is not expected to fall as hard as other economies because the government has not had to mandate lockdowns, meaning consumers have been able to better maintain their lifestyle, helping support retailers, restaurants and other service sector businesses that have been hardest hit in other countries.

Taiwan had reported only 426 confirmed coronavirus cases as of Wednesday afternoon, less than half the number of Hong Kong and well below those of other Asian countries. Only six people have died from the virus a much lower fatality rate than neighbouring countries in the region.

Taiwan’s vice-President Chen Chien-jen, an epidemiologist, has taken a lead role in managing virus control efforts, after having successfully managed Taiwan’s brush with Severe acute respiratory syndrome (Sars) in 2002-2003.

In addition to its success in combating the virus, Taiwan is benefiting from an increase in sales for some of its products resulting from the pandemic.

New orders for Taiwanese exports posted a surprise increase of 4.3 per cent in March from a year earlier, against expectations for a 10 per cent decline. Demand for electronic products jumped nearly 24 per cent.

Actual shipments in March fell 0.6 per cent compared to a year earlier, well below the 7 per cent drop the market was expecting, as an 18.1 per cent rise in electronic shipments offset most of the declines elsewhere.

Contract chip maker Taiwan Semiconductor Manufacturing Company (TSMC), a bellwether for the island’s tech sector, reported last week that first-quarter revenue increased 42 per cent from a year earlier.

While TSMC saw increased demand for high-performance computing and 5G smartphone chips in the first quarter, the company sees “flattish” revenue this quarter, CFO Wendell Huang said in a statement on April 16.

“Weaker mobile product demand is expected to be balanced by continued 5G deployment and HPC-related product launches,” Huang said.

Taiwan-based Acer, the world’s No 6-ranked PC maker, posted a March revenue increase of 2.2 per cent year-on-year.

“We have seen increased demand in certain product lines due to online learning and work-from-home needs, including notebook PCs, Chromebooks, monitors, and others,” an Acer spokesman said on April 10. “We are doing our best to fulfil them.”

“Taiwan’s export orders and exports have continued to hold up well as of March,” DBS economist Ma Tieying said. “This was in part due to the production resumption in mainland China, in part also due to the rise in electronics demand at the initial phase of Covid-19 outbreak.”

On top of this better-than-expected electronic export performance, Taiwan is also offering economic stimulus to keep its economy moving.

Despite these positive notes, most private forecasters still expect the Taiwanese economy to contract this year.

A sharp contraction [in Taiwanese growth] could be expected ahead in the second and third quarters, when global recession, job losses and income declines start to emerge

DBS Bank

“A sharp contraction [in Taiwanese growth] could be expected ahead in the second and third quarters, when global recession, job losses and income declines start to emerge,” DBS Bank said in a research note.

“That said, we still expect the economy to fare better than during the global financial crisis period in 2008-09. Electronics exports should stay relatively resilient this time, thanks to the rise in the stay-at-home economy and the resultant demand for laptops, tablets and other electronics devices from global consumers.”

But given the uncertainty in the global outlook, there is still debate over how much of an affect the pandemic will have on Taiwanese growth this year.

DBS is projecting the Taiwanese economy to contract 1 per cent due to slowing demand for exports in Europe, the United States and Southeast Asia. However, the Yuanta-Polaris Research Institute, a think tank in Taipei, expects the economy to grow by 1.5 per cent.

Capital Economics is on the pessimistic end of the spectrum, forecasting a contraction of 5 per cent, a steeper fall than the 3 per cent drop in global growth it expects this year.

Government officials argue that private forecasters are overestimating the impact of the pandemic and are underestimating the effect that government economic aid for hard-hit businesses will have on supporting the economy.

Stimulus measures will raise this year’s gross domestic product by about a quarter percentage point, deputy economic affairs minister Kung Ming-hsin told the island’s legislature in March. These measures include direct aid to companies, new infrastructure spending and handing NT$800 (US$27) shopping vouchers to every islander.

“In the future, the government will continue to come out with measures that help enterprises and let the people and government join hands in getting through this hard time together,” Kung said.

Taiwan’s service sector, tracking the world trend, also lost business in February and March as people avoided going out. They feared at first getting infected by people returning from holidays in the mainland, but government restrictions on indoor events of more than 100 people and face mask requirements on public transit have heightened concerns.

Hotels, airlines and travel agencies have also seen little to no business since Taiwan closed entry in mid-March to all foreign visitors except resident permit holders.

Taiwan has avoided imposing any lockdowns, with Health and Welfare minister Chen Shih-chung saying today that the chance of such a dramatic step was remote. There have been fewer than 10 new daily coronavirus infections all but one day since March 26.

Restaurants, retailers, malls and all types of public transit are still operating, while work routines go on as normal. Spending vouchers are expected to help shops recover, with large, airy shopping malls continuing to draw customers uncomfortable in tighter spaces, said Liang Kuo-yuan, president of the Polaris Research Institute research organisation in Taipei.

The damage to business activity in Taiwan isn’t as big as it will be overseas, because Taiwan isn’t locked down

Liang Kuo-yuan

“The damage to business activity in Taiwan isn’t as big as it will be overseas, because Taiwan isn’t locked down,” Liang said.

Transport use was at 75 per cent of normal levels at the end of March, recreation remained at 90 per cent and work never wavered, so Taiwan’s economy will perform better than Hong Kong, Singapore and South Korea, DBS economist Ma Tieying said.

“The domestic economy should do reasonably well, helped by the fact that Taiwan hasn’t had to introduce a nationwide lockdown like much of the rest of the world,” said Gareth Leather, senior emerging Asia economist with Capital Economics in London.

However, Taiwan’s export data covering March does not fully account for shutdowns in Europe and the US that began only late last month and will affect demand.

“But with the global economy set to contract this year, Taiwan exports are going to collapse. Given how trade dependent Taiwan is, a sharp slowdown is inevitable,” he said. “The government’s forecast seems widely optimistic.”


Category: Taiwan

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