Covid Outbreak Clouds Taiwan’s Growth Outlook Amid Export Boom

(Bloomberg) -- The ability of Taiwan’s factories to continue running at full steam is key to keeping the economy on track as a persistent Covid-19 outbreak threatens to derail what was lining up to be a strong year for the economy.

The government is likely to keep its estimate for first-quarter gross domestic product growth little changed at 8.2% -- the fastest pace in over a decade -- when it publishes revised data Friday, according to a Bloomberg survey of 13 economists. It’s also expected to update its full-year GDP forecast from 4.64%.

The rapid pace of expansion early in the year left most analysts initially expecting officials to upgrade their outlook. But the Covid outbreak and subsequent soft lockdown measures imposed in mid-May have left economists scrambling to reassess their forecasts.

“If Taiwan’s Covid situation can be brought under control by end-June, the economic hit is likely to be concentrated in the services sector,” Angela Hsieh, an economist at Barclays Bank Plc in Singapore, said in a message. “One very important point to look out for is whether or not manufacturing activities suffer any disruption.”

Hsieh downgraded her initial full-year GDP forecast by 50 basis points to 6.1% but warned that Taiwan’s slow roll-out of vaccines leaves it vulnerable to renewed outbreaks. GDP is projected to reach 5.7% this year, according to the median estimate of 10 economists surveyed by Bloomberg, who have updated their full-year forecasts since May 27.

Taiwan was one of the world’s few developed economies to expand in 2020 as the health authorities managed to keep the coronavirus at bay, meaning domestic consumption was largely unaffected. Surging global demand for computer chips produced by the likes of Taiwan Semiconductor Manufacturing Co. and companies moving production capacity back home from overseas further bolstered growth.

But the virus managed to make it past border defenses in April, prompting the government to implement a soft lockdown in May, shutting entertainment and recreation venues, closing schools and ordering restaurants to offer take-out service only.

Societe General SA economist Michelle Lam sees the potential impact on services weighing on growth in the second and third quarters. But she says the Covid restrictions are unlikely to have much impact on companies’ plans to increase their capacity and meet overseas demand for semiconductors and other technology products.

“The impact of Covid-19 on business capex is likely to be muted, supported by the semiconductor industry and reshoring,” she said in a message. “Given the supply shortage, several major foundry firms have ramped up their capex plans massively to meet the rapidly expanding demand.”

©2021 Bloomberg L.P.