Although Taiwan is scheduled to ease COVID-19 restrictions on Sunday, it is expected to face a slew of economic challenges, including labor market strains, re-escalating US-China trade tensions and the lingering impact of a global recession, in the second half of this year, DBS Bank Ltd said in a report issued on Tuesday.
The Singapore-based lender said that a rising unemployment rate and the pandemic’s impact on household income would slow the recovery of private consumption.
Government data showed that the seasonally adjusted unemployment rate jumped to 4.1 percent in April, from 3.8 percent a month earlier and 3.7 percent in the first three months, while the number of workers taking unpaid leave hit a 10-year high of 26,000 at the end of last month.
DBS economist Ma Tieying (馬鐵英) predicted that the unemployment rate would continue to rise to about 4.5 percent in the second half of the year.
The government easing limits for crowd sizes would help retail, food and beverage services to rebound moderately in the next six months, but tourism-related services are likely to remain sluggish as border controls remain in place, Ma said.
The report does not estimate the effect of the government’s stimulus coupon program, which permits Taiwanese and foreign spouses to buy NT$3,000 coupons for NT$1,000.
Meanwhile, the re-escalating trade dispute between the US and China could pose a risk to Taiwan’s economic recovery, it said.
Washington scaling up restrictions by foreign firms on supplies to Huawei Technologies Co (華為) would negatively affect Taiwanese chipmakers, it added.
“The new Huawei ban would have a ripple effect on Taiwan,” Ma said, adding that the Chinese company accounts for 15 to 20 percent of Taiwan Semiconductor Manufacturing Co’s (台積電) sales.
Huawei has reportedly rushed to stockpile chips in preparation for the US policy, contributing to Taiwan’s strong electronics exports in the first four months of the year, Ma said.
Demand from Huawei is forecast to shrink in September, when the policy’s 120-day grace period expires, she added.
“It is questionable whether Taiwan’s export-driven electronics sector can sustain its strong performance through the whole year,” Ma said.
DBS maintained its forecast that Taiwan’s economy would contract by 1 percent this year.
The Directorate-General of Budget, Accounting and Statistics expects GDP to grow 1.67 percent.
The lender also expects the central bank to cut the discount rate for the second time this year at its quarterly meeting later this month by 12.5 basis points, lowering the rate from 1.125 percent to 1 percent.
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