♦ Updated daily ｜Taiwan’s Covid-19 Outbreak

“When our borders were closed, we lost one leg, now we lost the other,” laments Andy Yu, president of Taiwan’s leading travel agency Lion Travel Service Co. Ltd.

In normal times, the lion’s share of the agency’s business comes from package tours to destinations abroad. With the onset of the coronavirus pandemic and the effective closure of Taiwan’s borders for tourism early last year, the agency shifted to domestic travel. 

Since mid-May, when a Level 3 alert was imposed island-wide, even domestic travel is out of the question. At the spacious office, the only calls were about the overseas vaccination tour groups. The only business units still generating revenue are government projects, gastronomy, and online shopping. In the past, these accounted for less than 30 percent of Lion Travel’s overall revenues.

On June 3, the Executive Yuan announced its latest relief package to mitigate the adverse effects from the Level 3 alert restrictions. But one day later, on June 4, the Directorate General of Budget, Accounting and Statistics (DGBAS) announced that Taiwan’s annual economic growth is forecast to reach 5.46 percent thanks to a boost in investment and exports in the first quarter.

This would be the highest growth that Taiwan has registered since 2010, when the economy recovered from the great recession in the wake of the global financial crisis between 2008 and 2009.
 
Taiwan’s economy is probably the most conflicted, on one hand economic relief packages, and on the other record economic growth. But economists are not surprised.

Ma Tieying, economist with Singapore-based DBS Bank, predicted last month that Taiwan’s situation is similar to South Korea and Japan, given that no full lockdown has been imposed. If the Level 3 alert with its rather flexible pandemic prevention measures stays in place for under two months, the growth rate for the full year will still fall between 4 percent and 5 percent, she noted. Since domestic demand in the second quarter of 2020 was weak, Ma expects domestic demand in the second quarter this year to still reach 2 percent, ruling out that growth could fall into negative territory.

As expected, DGBAS, in its latest economic growth forecast, halved its second quarter growth rate from 5.95 percent to 2.85 percent.

Tsai Yu-tai, head of the DGBAS Department of Statistics, said the latest GDP forecast was updated on the assumption that there will be no nation-wide Level 4 alert, that the exporting industry remains unaffected, and that the local transmission of COVID-19 can be contained by the end of June. 

While domestic demand will take a stronger hit in the second quarter than in March and April of last year, the economy is expected to slowly recover in the third quarter.

Starting from 2021, the growth momentum of the Taiwanese economy has shifted from the service industry to the manufacturing sector.

Normally, domestic consumption contributes a higher share of GDP than business investment and net exports. But in the February forecast consumer spending accounted for only 1.34 percentage points, lagging far behind private sector investment and net exports.

“The output of Taiwan’s manufacturing industry grew more than 10 percent; that’s the first time since 2013,” says Yueh Chun-hao, researcher with the Industry, Science and Technology International Strategy Center (ISTI) under the Industrial Technology Research Institute (ITRI).

GDP to drop to 2% if alert is raised to Level 4

In its latest forecast, published June 3, ISTI adjusted the manufacturing industry output growth rate upward from its 4.75 percent forecast of last October to 10.03 percent. The four major manufacturing sectors – consumer goods, chemicals, metals and machinery, information technology and electronics – will all post positive growth, a rare situation.

As ISTI Vice President and General Director Stephen Su explains, Taiwan is benefitting from the recovery of the world economy. Presently, order visibility in the manufacturing industry extends into the third quarter. In the ICT industry, the semiconductor shortage will continue until the end of year, and demand for memory chips will outstrip supply even into the coming year. For computer displays the situation after the fourth quarter is uncertain, but given that more people work from home now, demand for laptops remains strong.

“Should a Level 4 alert be implemented for a total lockdown, so that production comes to a standstill like in Singapore during the second quarter of 2020, Taiwan’s GDP growth rate could drop to 2 percent, below last year’s GDP,” notes Ma. 

However, for highly automated industries such as semiconductors and electronics the impact of a Level 4 alert could be limited. In contrast, labor-intensive industries would be harder hit. Under a lockdown scenario, the economic impact would depend on which industries the government orders to halt production, she explains.

Economics Minister Wang Mei-hua has already vowed that the semiconductor industry will not shut down. The Taiwan Association of Machinery Industry has also appealed to the government that a suspension of production is impossible for this trillion NT-dollar industry.

While the manufacturing industry is experiencing a boom, the service industry is reeling in the wake of the new restrictions.

Since Taiwan registered no community transmission in 2020, preventive measures did not go beyond Level 2, which meant wearing masks, social distancing, temperature checks and crowd controls at most. According to Google mobility reports, retail stores and leisure facilities registered a decline in foot traffic of less than 20 percent between March and May last year. But this May, people’s movements dropped by 50 percent. In public transport stations, foot traffic declined by 60 percent compared to a reduction of 25 percent last year.

“Now that all of Taiwan has entered a quasi-lockdown, the tourism and hospitality industry is on the brink of death. We urgently need the government to come to its rescue, to revive its heartbeat and save its life,” pleads Steven Pan, chairman of the Formosa International Hotels Group.

Pan fears that half of all hospitality businesses are going to fold.

During the worst period last year, a total of 31,816 people were on unpaid leave, half of whom were working in the service industry. Before the alert was raised to Level 3 in mid-May, 3,099 service industry workers were still on unpaid leave although the economy is booming as people spend money that they were not able to spend last year. The manufacturing industry had already recovered long before that.

Although domestic consumption is still posting positive growth this year, the service industry is extremely fragile after last year’s downturn, if one looks at the absolute figures. In the past, Taiwan’s private consumption grew by at least 2 percent per year on average. But this year, personal consumption is forecast to reach NT$10 trillion, which is just a 1.3 percent increase over two years ago – as if a whole year had been skipped.

Consumption for the second quarter this year is forecast to lag behind the same period last year. This means that it will be difficult to maintain the original level of business activity.

All the shiny economic growth figures cannot and must not be allowed to cover up these truly gloomy prospects.

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♦ Updated daily ｜Taiwan’s Covid-19 Outbreak
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Translated by Susanne Ganz
Edited by TC Lin
Uploaded by Penny Chiang