Taiwan Lowers 2020 Growth Outlook as Virus Weighs on Economy

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Taiwan cut its full-year growth forecast as the coronavirus outbreak threatens jobs at home and decimates overseas demand.

• The government forecast gross domestic product will expand 1.67% in 2020, down from its February estimate of 2.37%.
• Officials see the virus taking a toll on Taiwan in the current quarter, with the economy expected to expand only 0.5%, its most sluggish since the first quarter of 2016. That’s after growing a revised 1.59% in the first quarter, according the statistics bureau Thursday, slightly higher than the initial reading of 1.54%.

Key Insights

• “Over the past three years, Taiwan Semiconductor Manufacturing Co. and Largan Precision Co. have continued to built out their production capacity in Taiwan,” said Tsai Hung-kun, deputy chief of the statistics bureau. “This move of the supply chain means growth and jobs are moving too. The nature of Taiwan’s economy is changing and that’s why GDP this year won’t be too bad.”
• Officials forecast exports and consumer spending to fall this year; investment and government spending will be the main factors driving growth for the economy as a whole
• Exports will fall 0.7% this year, the government estimated, much lower than the 2.37% growth they previously forecast. Tsai pointed out that this is largely due to falling prices and that Taiwan’s exports calculated in units will likely increase.
• The travel sector has seen the biggest impact from falling spending with industry revenue falling just under 60%, according to Tsai.
• While Taiwan has overcome the pandemic better than many, the economic warning signs are mounting. The global spread of the coronavirus outbreak has hurt exports and domestic consumption. Exports fell in both March and April while the unemployment rate rose last month to its highest since 2013, with the service industry hardest hit.
• The National Development Council’s monitoring indicators, an index of forward-looking economic and market data, fell for a fourth straight month to its lowest since last October.
• The government’s efforts to bolster the economy remain relatively modest compared to what other countries in the region are doing. The cabinet says its various stimulus and relief measures will end up costing around $35 billion. The government this week unveiled plans to distribute vouchers worth $100 to every citizen this summer to stimulate spending.

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• The Bank of Korea said earlier Thursday it is considering unconventional policy tools to support growth after forecasting the country’s first economic contraction since the Asian financial crisis. The bank also cut interest rates to a record low.
• Taiwan’s tech companies have trumped their South Korean peers so far this year as analysts remain more bullish with their profit estimates for the likes of TSMC. Societe Generale SA sees sees companies in Taiwan as being more aligned to new technologies like 5G than their Korean rivals.
• Even as JPMorgan Chase & Co.’s chief executive officer Jamie Dimon sees good odds of a quick recovery for the U.S. economy, Goldman Sachs Group Inc. President John Waldron says the global economy is in for a bumpy ride still as it exits coronavirus lockdowns.

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