Taiwan Proposes Doubling Extra Stimulus to Boost Ailing Economy

Taiwan’s ruling party said it plans to double a proposed increase in stimulus funding as the economy reels from tightening virus restrictions across the island.

The Democratic Progressive Party wants lawmakers to approve NT$420 billion ($15 billion) of additional funding on Monday, cabinet spokesperson Lo Ping-cheng said. That’s more than earlier sought and roughly equivalent to all the funds spent or earmarked since the start of the pandemic.

Taiwan Proposes Doubling Extra Stimulus to Boost Ailing Economy

Authorities are aiming to move fast after an explosion in Covid-19 cases forced the shutdown of the island’s schools and bars, with restrictions on social gatherings. Fiscal stimulus last year, when Taiwan shut its doors to tourists but avoided a lockdown, included subsidies for industries and cash-like vouchers that reached more than 98% of the island’s 23.5 million people aimed at encouraging local tourism and retail spending.

This time around, people are urged to stay home under rules that will remain in place until at least mid-June, requiring more targeted financial support.

The cabinet Thursday discussed expanding a central bank lending program for small- and medium-sized businesses, National Development Council minister Kung Ming-hsin said. In addition, there will be wage subsidies for SMEs, and subsidies ranging from NT$10,000 to NT$30,000 for drivers, tour guides, fishermen, farmers and some self-employed people.

Vouchers to stimulate spending will be discussed when the outbreak eases, Lo said.

Taiwan Proposes Doubling Extra Stimulus to Boost Ailing Economy

“The latest virus is totally different from 2020. With many service-sector companies shutting down operations, they will quickly run out of cash, and some workers won’t get paid,” Winston Chiao, an economist at Taishin Securities Investment Advisory Co Ltd., said before the announcement.

Plenty of Room

Government debt remains low at about 32% of gross domestic product, which leaves plenty of room for authorities to borrow before reaching the cap of 40.6% mandated by law. However, officials say there’s no need for stimulus on the scale seen in hard-hit western economies just yet, since export demand remains strong -- fueled by the computer chip boom -- and growth is still seen above 4% for this year.

“The stimulus in the U.S. and Europe was huge, which is understandable as their economies were hard hit by Covid and lots of people lost their jobs,” Lo said in an earlier interview. “But Taiwan’s economic fundamentals are still good, with exports performing well. As long as the outbreak can be controlled, the scale of stimulus won’t necessarily be as big as elsewhere.”

Taiwan Proposes Doubling Extra Stimulus to Boost Ailing Economy

The current outbreak has grown so fast -- the last day of zero local infections was early May -- that data isn’t yet showing the impact. The jobless rate stood at 3.71% in April. That’s almost exactly the same level as in February last year, after which it rose to a peak of 4.13% as the pandemic triggered a slump in consumption.

The number of companies that released staff on unpaid leave in the past few months ticked up to 414, but that only covers those that voluntarily submit data, and cash-in-hand businesses and workers aren’t captured at all.

Tranquil Taipei

A better picture of the impact of the lockdown can be found on Taiwan’s streets. Normally bustling night markets and popular scenic spots are like ghost towns. That may presage a slump in retail sales like the 22% month-on-month decline in February 2020, when Taiwan battled its initial, smaller outbreak.

Based on overseas experience, the government should focus on securing jobs, said Raymond Yeung, chief economist of Greater China at Australia & New Zealand Banking Group Ltd.

Whether the additional stimulus is enough will depend on how long the curbs last, and whether the island is forced into a full lockdown.

Taishin’s Chiao said he has cut his growth forecast to 3.5%-4% this year from 4.5%-5%. The government has delayed its updated GDP forecast to June 4.

Taiwan Proposes Doubling Extra Stimulus to Boost Ailing Economy

Both ANZ’s Yeung and Taishin’s Chiao say central bank easing remain off the table, at least for now. The bank lowered its benchmark interest rate to a record low of 1.125% in March 2020, and has kept it unchanged since then. Policy makers have been more concerned about curbing gains in the currency in order to keep exports competitive.

Borrowing costs are “already very low,” Yeung said, and it would be “meaningless for the central bank to lower its discount rate again.”

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