Taiwan Economic Outlook – May 2020

Is the IMF being too negative?

In the International Monetary Fund’s World Economic Outlook for April, Taiwan’s GDP forecast for 2020 was set at a horrendous -4%, a figure that government officials are doing their best to refute. The National Development Council is arguing that the IMF did not have full knowledge of Taiwan’s economy and neglected to account for how well Taiwan has controlled the COVID-19 outbreak, for example allowing factory operations to continue.

In other responses to the pandemic, the private Taiwan Institute of Economic Research downgraded its forecast for Taiwan’s economic growth this year from 2.67% to 1.58%, citing the economic impact of the COVID-19 pandemic, and the semi-official Chung-hua Institution for Economic Research downgraded an earlier forecast of 2.44% to 1.03%. Fitch Ratings also lowered its GDP growth forecast to a mere 0.3%, down from a previous estimate of 2.3%.

In the first three months of 2020, Taiwan’s economy showed its slowest quarterly growth in four years, expanding 1.54% from a year earlier, the Directorate General of Budget, Accounting and Statistics reported. However, officials said external demand remained unexpectedly strong, with the COVID-19 epidemic mainly crimping domestic consumption, including the impact of a more than 50% drop in foreign tourists in the quarter.

At the same time, sectors such as semiconductors and telecommunications have received a significant boost in demand as consumers working from home purchase new equipment. March export orders, a leading indicator, unexpectedly grew at the fastest pace in 17 months, rising 4.3% year-on-year to reach US$40.3 billion. Electronics orders, in particular, rose 23.8% from a year earlier. The Ministry of Economic Affairs said the good performance was partially due to “delayed” demand since many factories in China had been closed under the COVID-19 lockdown.

March exports, however, contracted by 0.6% year-on-year to US$28.27 billion. Total imports rose by 0.5% from a year earlier to US$25.48 billion, leaving a favorable trade balance of US$2.78 billion. Exports of electronic components grew 18.1% year-on-year and information, communication, and audio-video products edged up by 0.2%. But all other export categories showed declines. Reflecting the severity of the COVID-19 crisis in the U.S. and Europe, exports to those markets declined 3.1% and 8.1% year-on-year respectively, while exports to Japan fell 2.1%. However, exports to China (including Hong Kong) grew by 3.4% and to ASEAN by 5.6%.  The unemployment rate rose in March by just 0.002 percentage points to come to 3.72%, showing that so far the economic slowdown has not had a huge impact on employment. Still, Taiwan faces the risk of recession because of the toll the pandemic is taking on the global economy. The value of Taiwan’s exports is normally equivalent to more than 60% of GDP.