What’s in Store for Next Year?

DBS economist Ma Tieying takes the most bullish view of Taiwan’s economic prospects for 2021, forecasting GDP growth of 4.2%. The most cautious position among those interviewed for this report was from Yuanta-Polaris Research Institute President Liang Kuo-yuan, whose forecast is “at least 3%.” In between is the government’s own statistics agency, which expects growth of 3.83%. 

The actual outcome is likely to depend on two uncertainties. First is the efficacy of the COVID-19 vaccines developed by American companies Pfizer and Moderna, and how quickly their use becomes widespread in severely infected countries. The second is the attitude that the incoming Biden administration takes toward China.

Even if the vaccines are as successful as the two companies claim, the Taiwan economy “probably wouldn’t feel the effects until the second half of the year,” says Angela Hsieh of Barclays Bank. She notes that if Taiwan can lift border controls, the return of foreign visitors would provide a sorely needed boost for ailing hotels, restaurants, and retailers. If the world economy returns to near-normal, Taiwan’s traditional manufacturing sectors could expect a rise in exports. 

Liang of Yuanta-Polaris points out that rapid distribution of the vaccine won’t be easy because of logistical challenges. Pfizer’s vaccine needs to be stored at about minus 75 degrees Celcius, which is well below the level of normal medical freezers, according to U.S. media reports.

In most countries, the vaccine is expected to be made available first to healthcare workers, people with already weakened health conditions, and the elderly, including residents of nursing homes and other long-term care facilities. Before infected economies could return to normal, a sizeable proportion of the population would need to be inoculated, notes Standard Chartered economist Tony Phoo. “At Standard Chartered Global Research, our timeline is in the second half of 2021.”

But he adds that the vaccines’ mere existence could have a positive influence in contributing to a global rebound. as “the impact on sentiment cannot be ignored.” In the meantime, he says, “we see a bumpy recovery in the first half of next year – one of fits and starts.”

For his part, Liang speculates that slower world recovery could actually benefit Taiwan’s overall economy through sustained high demand for ICT products used for working at home and remote communications. In addition, “if COVID-19 is not fully under control and foreign governments like the U.S. and Japan inject stimulus packages into their economies,” that could also help fuel demand for Taiwan products.

The nature of the China policy adopted by the Biden administration is seen as another factor affecting the 2021 outlook. “If the new U.S. administration becomes more friendly to China or not as hostile, the movement of Taiwanese businesses based in China will not be as fast as in 2020,” says Liang.

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