Taiwan’s coronavirus outbreak leaves services sector reeling as new curbs bite

New restrictions on gatherings and movement in Taiwan pose a threat to the island’s vital service sector, which makes up nearly two-thirds of GDP
Measures that stretch to late June, causing consumption of services to fall, could wipe 0.5 to 1 percentage point off the 2021 GDP forecast, analysts say

Coronavirus pandemic

Ralph Jennings

Published: 6:15am, 22 May 2021

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Taiwan’s all-important service sector will shrink and dent gross domestic product (GDP) growth if new restrictions imposed to curb a spike in Covid-19 infections last another month or two, eating into economic expansion that outpaced most of the world last year, economists say.

But Taiwan’s manufacturing sector – a key source of the world’s semiconductors, PCs and machinery – is expected to stay strong.

The island has recorded 1,889 coronavirus cases for the past 11 days, with most caused by local transmission in greater Taipei, the Taiwan Central Epidemic Command Centre said.

This outbreak makes everything difficult. We weren’t prepared because this came along so suddenly

Hung Chia-chun

The spike in community transmissions has alarmed authorities who have raised the alert level to three in a four-tier system, prompting closures of libraries, recreation centres, exhibition halls and cinemas.

Many residents in the capital are staying home, and the president, premier and economy ministry have urged people not to panic buy items amid the uncertainty.

Even before Taipei ordered most food outlets to stop dine-in services on Thursday, only a trickle of people sat in the city’s cafes and restaurants, with plenty of space between groups.

Hung Chia-chun, a store manager at a just-opened Y.J Coffee in central Taipei, said his sales income had recently fallen below that of branches in small towns where outbreaks were under control.

“People are definitely scared, but to go out and have a drink, a coffee, is a Taiwanese custom,” said Hung on Wednesday in his brightly lit but near-empty shop.

“This outbreak makes everything difficult. We weren’t prepared because this came along so suddenly.”

The longer the lockdown, the more severe the results

Rajiv Biswas

If the new curbs on gatherings and movement stretch on, analysts see problems ahead for Taiwan’s service sector, which makes up nearly two-thirds of GDP that is estimated to be worth US$759 billion this year.

“Consumer spending on entertainment, transportation, dining and shopping activities is likely to fall notably in the April-to-June quarter,” DBS Bank economist Ma Tieying said in a Tuesday research note. “The related services sectors will likely take a hard hit.”

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Private consumption is expected to decline this quarter on a sequential basis and could exceed the 10 per cent fall seen between the first two quarters of last year, Ma forecast. Local virus transmission a year ago was a fraction of this month’s outbreak.

The government’s Directorate-General of Budget, Accounting and Statistics still forecasts 4.64 per cent GDP growth for 2021 after a 2.98 per cent gain last year.

The next forecast is due on May 28, coinciding with the day that Taiwan’s level-three containment measures are due to be lifted.

In May last year, the directorate-general lowered its second-quarter GDP estimate by 0.02 percentage points following a less severe outbreak.

If Taiwan’s current containment measures hold until late June, the drop in consumption of services will shave 0.5 to 1 percentage point off the 2021 GDP forecast, said Alicia Garcia Herrero, chief Asia-Pacific economist for Naxtis. The French investment bank is forecasting 6.4 per cent growth this year.

“However, if we move to a level-four lockdown for a month or two, production will be halted and investment will plummet, which means that growth might hover around 0 per cent,” she said.

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Taiwan might ultimately fall in line with other Asian economies where authorities have imposed off-and-on restrictions to control virus outbreaks, said Rajiv Biswas, chief Asia-Pacific economist with the market research firm IHS Markit. But it would continue to restrict movement due to the slow rate of vaccinations, Biswas said.

Taiwan’s economic activity, especially in traditional retail, will show a decline from late April into May, he said, but “early” containment measures could help it bounce back.

“The longer the lockdown, the more severe the results,” Biswas said.

02:38

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Taiwanese businesses could normally “survive a few weeks off” and eventually qualify for government stimulus, said Sean Su, an independent political analyst in Taipei.

The export manufacturing sector should stay on track even if stricter lockdowns take hold, said Gareth Leather, senior emerging Asia economist with Capital Economics in London.

A worldwide semiconductor shortage was fuelling orders to Taiwan’s tech firms, which operate in counties with few Covid-19 cases.

“Provided exports hold up well, then it is possible that the economy would continue to grow even if a lockdown was declared,” Leather said.