Taiwan Economy Has Unexpectedly Strong Rebound in Third Quarter

31-Oct-2020 Intellasia | Bloomberg | 7:28 AM Print This Post

Taiwan’s economy expanded strongly in the third quarter, with the quick control of the Covid-19 pandemic and the benefits of US-China competition combining to boost growth after a contraction earlier this year.

Gross domestic product expanded 3.3 percent in the third quarter from a year ago, driven by better-than-expected exports, the statistics bureau said Friday. That was higher than even the most bullish forecast in a Bloomberg News survey of economists. The median estimate was for growth of 1.1%.

Taiwan joins South Korea and China in quickly shaking off the Covid-19 downturn, even as many of its other trading partners are still contracting. That recovery has been underpinned by a variety of factors, including export growth, a stronger currency, the quick control of the virus, and a voucher-based domestic stimulus programme.

“Whether you’re looking at foreign trade or consumption, it’s all looking quite positive,” Anita Hsu, an economist with Masterlink Securities Investment Advisory in Taipei, said in an interview Monday. “Domestic consumption appears to have picked up significantly, and the stimulus and tourism vouchers should be sufficient to offset some of the lost consumption from foreign tourists.”

The economy has no doubt benefited from success in controlling the coronavirus outbreak, with just 553 reported cases and only seven deaths. Taiwan reached 200 days without a local infection Thursday, and has never had to enforce a lockdown, limiting the damage to domestic consumption.

Read more: Record 200 Days With No Local Case Makes Taiwan World’s Envy

Markets have also remained positive: Taiwan’s main stock exchange has been trading near its record high, and the Taiwan dollar is one of the best performing Asian currencies so far this year against the greenback, strengthening more than 4%.

It has also benefited from conflict between the US and China. Exports to China surged 22.3 percent in September, largely driven by demand from Huawei Technologies Co. prior to the US-imposed ban on sales to the Chinese tech company taking effect in the middle of the month.

Taiwan Semiconductor Manufacturing Co. has been one of the biggest beneficiaries of the Huawei ban. The chipmaker, which accounts for 30 percent of the Taiwan Stock Exchange’s market capitalisation, smashed estimates with a 36 percent y/y increase in net income in the third quarter.

Huawei aside, demand connected to Apple Inc.’s new iPhone 12, people buying devices to work or study from home, and the global 5G transition have also been a boon for TSMC and other Taiwanese hardware companies. Restructuring of regional supply chains away from China has also been driving investment in Taiwan.

“The long-term capital outflow trend has been completely reversed,” President Tsai Ing-wen said in her National Day address on October 10. “Many foreign companies and well-known multinational corporations are also increasing their investments in Taiwan.”

Local Demand Key

The government has also acted to assist businesses and stimulate demand. Taiwan has spent more than NT$150 billion ($5.2 billion) on relief measures so far and the legislature approved a NT$210 billion relief budget last week.

With tech exports expected to remain robust in the near future, sustaining domestic demand will be crucial to continuing the economic rebound.

“It’s highly unlikely that Taiwan will open up to foreign travellers before the end of this year,” said Carl Liu, economist at KGI Securities Investment Advisory Co. “For private consumption to increase, it will come down to spending by ordinary Taiwanese.”



Category: Taiwan

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