Taiwan Economic Outlook – March 2020

COVID-19 AROUSES FEAR, CAUTION 

Markets around the world have begun tumbling due to coronavirus fears, and a “black swan” recession looks possible in some economies. The Taiwan Stock Exchange has not been insulated from the shocks, with weighted shares plunging 220 points, or 2%, in late February. The outlook for a quick recovery does not look promising, as some are predicting another big drop in March and a 10% to 15% fall in tech sector shares over the next few months. 

Exports in January decreased by a substantial 7.57% from the same month a year earlier, while imports declined by 17.66%. Export orders, a leading economic indicator, fell by 12.8% year-on-year in January due to the extended Lunar New Year holiday break and the COVID-19 outbreak in China. Considering Taiwan manufacturers’ heavy reliance on components and materials from Taiwan for use in their operations in China, falling demand from that market due to stalled production and reduced consumption could cause further decreases in overall trade in the coming months. 

The Taiwan Institute for Economic Research reports a 2.23 percentage point drop in its manufacturing composite index for January. The portion of Taiwanese manufacturers who saw business as being worse than expected in January increased by almost 25 percentage points from the previous month. The manufacturing sector’s outlook for the coming six months is similarly pessimistic, with 26.4% of surveyed businesses predicting a further decline in sales. TIER’s other two composite indexes, for services and construction, decreased by 3.15 and 8.41 percentage points, respectively. 

Minister Chen Mei-ling of the National Development Council.

While the general picture looks grim, National Development Council Minister Chen Mei-ling says that the impact of COVID-19 on Taiwan’s economic performance may not be as severe as it was during the SARS outbreak. In particular, the current situation is likely to accelerate the diversion of manufacturing and trade from China to other economies in the region, including some business that will return to Taiwan. Further, the introduction of 5G technology in Taiwan will drive the development of new applications, creating commercial opportunities that should soften the negative impact of the COVID-19 outbreak. Lastly, the rise in e-commerce, food delivery, and courier services could compensate for the temporary decline in conventional consumption in Taiwan. 

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