Taiwan has cut its 2020 GDP growth forecast from 1.67% to 1.56%, slowing its outlook to its weakest in five years, according to government statistics released last Friday.
The revision follows a disappointing Q2 performance, which saw Taiwan’s real GDP contract by 5.48% quarter-on-quarter and 0.58% year-on-year, the latter of which marked a slight improvement from the advance estimate of 0.73%.
The coronavirus pandemic has heavily impacted consumer demand. Real private final consumption fell 4.98% year-on-year in Q2 – a substantial increase from the 1.55% decline last quarter. The figure reflects “severely shrunk travel spendings abroad of residents’ due to border controls and other travel restrictions”. Real exports and imports have also declined by 3.5% (yoy) and 4.09% (yoy).
Decreases in travel, tourism, and F&B demand have also led to further Q2 contractions in both the transportation and storage sector (23.73%) as well as the accommodation and food service sector (15.20%) – up from the 10.17% and 10.90% contractions in Q1.
However, Taiwan’s manufacturing sector has remained resilient, reporting slower, but positive, growth of 3.48% (yoy) in Q2 due to semiconductor, computer, electronic and optical outputs. The wholesale and retail trade sector and the financial insurance sector also reported positive, albeit moderate, growth.
Looking forward, Taiwan anticipates real exports will contract by 2.74% in 2020 – a substantial drop from the 0.70% contraction previously forecast in May. Although its key role in the global technology supply chain is expected to boost exports, this will be tempered by “weakened global demand, slumping raw material prices and reducing tourists.”
Taiwan also faces deflation, with its Consumer Price Index expected to decrease by 0.19% in 2020. Consumer expenditure is forecast to decline by 1.44% with the drop in travel expenditure expected to outstrip the growth in e-commerce.
However, the nation’s real private fixed capital formation is forecast to continue to grow at 2.41%, reflecting “the continuing investment of semiconductor industry, reshoring of Taiwan’s overseas companies, 5G network construction, offshore wind energy, reconstruction of unsafe and old buildings, and urban renewal. ”
The economy is expected to rebound next year, with real GDP predicted to grow at 3.92% in 2021.
As world trade recovers, Taiwan’s stimulus vouchers and other measures are expected to further boost consumption and dispel consumer and business uncertainty. Moreover, continued investment into domestic tech companies will spur export and investment growth for the country.