Affected by the spread of the COVID-19 pandemic, many countries have implemented disease prevention measures such as city lockdowns, factory closures, travel restrictions and border controls. These resulted in slowing economic activitiy and dwindling global trade, which have negatively affected Taiwan’s export-reliant economy. Consequently, the Directorate-General of Budget, Accounting and Statistics (DGBAS) last week revised downward its economic growth forecast for Taiwan for the second time this year.
The DGBAS on Thursday predicted the nation’s GDP would expand 1.67 percent this year. The agency’s new forecast is lower than the 2.37 percent it estimated in February, and weaker than Taiwan’s economic growth of 2.71 percent last year.
Most importantly, the new figure fell below 2 percent, a psychological level meaningful to the public. The situation has caused some to wonder if GDP growth would struggle to stay above 1 percent this year in case the pandemic persists, hurting consumer confidence and world trade.
Based on the DGBAS’ report, the nation’s economy contracted by a seasonally adjusted annualized rate of 3.57 percent in the first quarter, with the year-on-year growth slowing to 1.59 percent, 0.21 percentage points lower than its previous prediction.
The agency reduced its growth forecasts for the second and third quarters by 0.2 percentage points and 0.79 percentage points from its previous predictions to 0.5 percent and 1.96 percent respectively, while the growth forecast for the fourth quarter was increased by 0.14 percentage points to 2.54 percent.
The forecasts reflected that the DGBAS has taken a more conservative view of the nation’s economic outlook as the impact of COVID-19 at home and abroad appears to be broader and longer-lasting than expected. In February, the agency had thought the outbreak would come and go as quickly as SARS in 2003 and believed that most negative effects would emerge in the first quarter. However, that the agency slashed its forecast for third-quarter growth by 0.79 percentage points -— more than any revisions for other quarters — indicated that it expected the effects of the outbreak to continue to weigh on the economy until at least the third quarter.
The upward forecast of an increase of 0.14 percentage points for the fourth quarter suggested that the DGBAS is slightly more optimistic about the economy for the final quarter than it was in February, given that the COVID-19 situation in China has stabilized, many European nations have passed the peak of the outbreak and the US has gradually emerged from lockdowns, while Taiwan and some of its Asian trade partners are also expected to relax their disease prevention measures this month.
It remains unknown whether a second wave of COVID-19 could hit the world after nations lift their epidemic control measures, especially during flu seasons in fall and winter, but the situations in Taiwan, China, Europe and the US have gradually stabilized, which would benefit Taiwan’s manufacturing industries and the nation’s exports as a whole.
Moreover, Taiwanese people and companies are expected to resume normal life and business activities this month, which would see the economy gradually gain support from pent-up demand on top of the government’s relief and stimulus measures.
Even though Taiwan’s economy might still face some headwinds in the short term, the slowdown might not last for too long if the COVID-19 situation continues to move in a positive direction until a vaccine is developed.
However, the global economic and trade environment is likely to be vastly different after the pandemic and some developments could become the new normal, such as anti-globalization, US-China tension, supply chain realignment and geopolitical conflicts, which deserve everyone’s close attention.
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