Taiwan’s GDP growth would slow to 0.2 percent this year as the COVID-19 pandemic would hurt the economy more severely than the government’s expanded relief measures could cover, Moody’s Investors Service said yesterday.
Moody’s said that the pandemic’s effect on the economy has escalated from a temporary supply-side disruption of cross-strait trade to a global economic downturn.
“The outbreak has evolved into a serious demand shock to Taiwan’s economy externally and domestically as the health crisis has swept the globe,” it said in a report.
Photo: Liberty Times
Taiwan is highly exposed to a global downturn because of its reliance on trade and cyclical industries. Export orders declined by 12.7 percent in February, the sharpest drop since May 2009.
Exports contribute approximately 50 percent of GDP, with the world’s two largest economies — China and the US — being the main destinations for Taiwanese goods, it said.
That explains why production halts due to quarantine measures in China at the start of the outbreak had sharply negative repercussions on economic activity in Taiwan given its deep integration into the regional supply chain, it said.
An anticipated drastic slowdown in China’s economic growth to 3.3 percent this year coupled with an estimated 2 percent contraction in growth in the US would weigh on demand for Taiwanese products, it said.
“We expect weak exports this year because most Taiwanese exports are destined for advanced economies in the West that have much dimmer growth outlooks themselves,” Moody’s said.
Moody’s expects business closures, social-distancing requirements and self-imposed quarantining to have a chilling effect on household spending in Taiwan, leading to weakness in the local labor market.
The number of furloughed workers nearly doubled to 8,000 last month from the beginning of the month, while a sharp slowdown in tourism, which accounts for about 2 percent of GDP, would further depress economic activity, it said.
Last week, the government expanded a relief and stimulus package to NT$1.05 trillion (US$34.73 billion), or 5.5 percent of GDP.
However, Moody’s said that the relief measures — which include subsidies and tax breaks for businesses, individuals and organizations — would mitigate the effects of the pandemic, but would not save exports.
Even so, Taiwan’s healthy fiscal position, with a debt burden of about 35 percent of GDP last year, would allow the government to support the economy without threatening its fiscal prudence, Moody’s said, adding that domestic savings also provide an affordable source of financing even as government borrowing increases.
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