The nation’s economy is losing steam, with GDP growth likely to be 1.6 percent this year as the COVID-19 outbreak hampers an expected recovery in the technology product cycle and curtails consumer activity, Australia and New Zealand Banking Group (ANZ) said yesterday.
The growth forecast was a cut of 0.5 percentage points from ANZ’s estimate of 2.1 percent in January, as heightening uncertainty could drive the central bank to cut interest rates to support the economy.
In a nine-page report, ANZ economists Raymond Yeung (楊宇霆) and Bansi Madhavani said that the coronavirus outbreak is putting pressure on exports and private consumption, as well as disrupting manufacturing supply chains.
As a result, a turnaround in the technology cycle, even if it happens, would be protracted, they said.
That would weigh on the economy in light of the nation’s heavy dependence on electronics exports, ANZ said.
Exports of electronic components used in smartphones, computers and other gadgets account for more than 50 percent of total exports, which will come under pressure as demand falls, the report said.
The impact of the outbreak would not be fully reflected in last month’s economic data due to a low base effect, the report said, adding that trade and manufacturing data for this month would better capture the magnitude of the repercussions.
Specifically, export orders would be a key indicator of supply-chain disruptions in the coming months, as it tracks global orders received by local companies regardless of production venue, as well as shed light on the external environment facing local companies and other Asian manufacturers, it said.
The coronavirus outbreak is also hurting domestic demand, ANZ said.
Travel restrictions have played havoc in the tourism sector, which accounts for between 4 and 5 percent of GDP, it said.
“Taiwan is vulnerable to consumption shocks amid the various travel restrictions and a curtailment in tourism activity,” the report said.
Restrictions on gatherings, and increased expenditure on health and medical services would lead to tightened consumer spending, it said.
Against that backdrop, the central bank would likely make “an insurance” cut of 12.5 basis points to the discount interest rate, currently 1.375 percent, the economists said.
Monetary policymakers in Australia, Malaysia and China have already taken steps to ease monetary policy.
The central bank is due to review its policy interest rates on March 19.
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