Coronavirus: Taiwan’s economic outlook dims as Omicron outbreak casts a shadow over growth
- Analysts say the economic outlook for Taiwan has become more downbeat, with a new outbreak chilling consumption and signs exports may have peaked
- Taiwan’s government in late May lowered its full-year economic growth forecast to 3.91 per cent, down from 4.42 per cent which it announced in February
Taiwan’s economy, while ironclad during the first 18 months of the coronavirus pandemic, is facing friction due to the island’s worst ever spike in infections and lacklustre overseas demand for some tech hardware.
The Directorate-General of Budget, Accounting and Statistics in late May lowered its full-year gross domestic product (GDP) growth forecast to 3.91 per cent, down from the expected 4.42 per cent announced in February.
The economy grew 6.28 per cent in 2021, the fastest pace in more than a decade.
“The economic outlook has become more downbeat,” said Gareth Leather, senior emerging Asia economist with Capital Economics in London.
“There are signs that exports, which have been a key driver of the recovery during the pandemic, have peaked,” Leather said. “And although the government has stuck to its promise to keep the economy open during the current Omicron wave, activity still appears to have dropped off sharply.”
A year ago, when cases went from a handful per day to a few hundred, the Central Epidemic Command Centre closed cinemas, libraries, recreation centres and restaurants, while limiting private events to four people.
The government has said this year it would avoid mandating closures as 83 per cent of people have been vaccinated at least twice.
But businesses such as restaurants have shut or cut hours over the past month as Taiwanese voluntarily stay home – save for work and necessary shopping – to avoid infections. Services make up about two-thirds of Taiwan’s US$759 billion economy.
Omicron is chilling “private consumption”, said Liang Kuo-yuan, president of the Taipei-based Yuanta-Polaris Research Institute.
Covid-driven economic shocks this year should be softer than those of 2021 thanks to the lack of required business closures, said Darson Chiu, deputy macroeconomic forecasting director with the Taiwan Institute of Economic Research.
“Domestic service sectors are not doing well because of the Covid outbreak,” he said. Yet unlike last year, “the government policies seem to move toward the trend of coexisting with the virus”, he said.
But exporters have hit the “top of a cycle”, Liang said.
“You can tell one way or another that Taiwan’s economic growth is declining,” he said.
The value of Taiwan’s exports is flattening out. In May, they reached about US$42.1 billion compared to US$41.5 billion in April and a record US$43.5 billion in March.
The S&P Global Taiwan Manufacturing Purchasing Managers’ Index (PMI), a gauge of factory activity, fell to 50.0 in May from 51.7 April. May’s reading was the weakest in 23 months.
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Throughout the pandemic, exports of hi-tech components have held up because of “strong” global demand for semiconductor chips, Chiu said. Consumers forced to stay home in much of the world since early 2020 ordered laptops and other gear for telework and home study.
But that cycle has begun to taper off as people return to work or school, market research firm IDC said in an April statement.
Global shipments of desktops, notebooks and workstations declined 5.1 per cent in the first quarter of 2022, though the industry has not begun a downward trend, IDC said.
Carmakers and integrated circuit design firms still need chips too, Liang said.
Acer, a Taiwanese PC vendor that IDC ranks as the world No 5 by market share, said lockdowns in Chinese commercial centres in the first half of the year impacted output, while causing a shortage of small components and prompting the developer to find new sources of materials.
Transport times have doubled due to labour shortages in the mainland, a company spokesman said.
Softer economic growth, global inflation and interest rates are weighing on consumer demand and PC prices, Acer said.
“Production continues across our portfolio, with varying degrees of output,” the spokesman said. “The situation is getting better but has not fully recovered due to partial restrictions.”