Taiwan: Bearing fruit from limited mobility restrictions

• It goes without saying that Taiwan is dependent on exports. Weaker demand from the Covid-19 pandemic is going to hurt any trade-oriented economies, especially under an unprecedented world lockdown. Although global growth is posed to contract further, Taiwan can bear fruit from the early actions on containing the virus outbreak, which essentially helps to insulate domestic shocks from large contagion and keep consumption and investment afloat.
• First, domestic activities are relatively uninterrupted in Taiwan. Mobility for retail and recreation only fell by 12% and work travel was unaffected, showing its strength versus developed Asia with a decline ranging from 30% to 60%. Together with the external shocks, the net result is a divergence between manufacturing and services sectors. On the one hand, industrial production held up, especially for electronics and related components. Domestic trade was also lifted by automobiles, machineries and health care. On the other, the services sectors are taking the burnt with weaker consumer confidence, collapsed tourist arrivals and higher unemployment. Corporate revenue fell by 7% in March 2020 with the exception in semiconductor. Even so, the condition looks more resilient comparing to the world.
• Second, the coronavirus outbreak may delay but would not derail investments. Notwithstanding the global pandemic, approved foreign direct investment grew 137% in Q1 2020 partially thanks to a low base effect. Europe and Japan are the key investors in manufacturing, electricity and gas supply. Taiwanese firms also speeded up in bringing overseas operations home with an approved amount reaching NTD 720 billion or 3.9% of GDP.
• Third, export growth stayed positive at 3.7% in Q1 2020 but signs of pressure were seen from March as the Covid-19 outbreak escalated in more countries. Exports to Korea and Europe have collapsed while extra pressure was seen in Japan and the US. But the good news is exports to mainland China surged as factories resume production.
• We expect Taiwan’s economy to stay relatively shielded and grow 0.9% YoY in Q1 2020 thanks to limited impact on domestic mobility and a still positive growth in exports. The biggest challenge could arrive in Q2 2020 as the weak global demand has started to infiltrate from March and services PMI clearly collapsed. If the domestic outbreak stays low, Taiwan’s economy will grow 1.5% in 2020 and accelerate to 2.9% in 2021, becoming one of the most resilient Asian markets supported by investment and limited drag on consumption.

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