Taiwan shows strong economic performance amid the coronavirus crisis, according to an economist from research house Capital Economics.
Gareth Leather, senior Asia economist, commended Taiwan for how it managed the coronavirus outbreak and said its economy has held up better than most Asian countries.
Despite being near to China, Taiwan has recorded just 447 coronavirus cases and seven deaths in a population of 24 million people. The world recognized Taiwan's success in curbing the spread of the coronavirus.
Capital Economics reported that industrial production increased by 1.5% in May from a year ago. This was lower than the 4.2% on-year growth in April. “It was still much stronger than most other countries in Asia,” wrote Leather.
South Korea and Singapore reported negative growth for industrial production in May.
“A key reason for the strong performance was that Taiwan never had to lock down its economy, so manufacturing plants have continued to run as normal,” Leather stressed. Capital Economics is forecasting a 2% decline in Taiwan’s 2020 GDP.
Taiwan reported GDP growth of 2.7% in 2019.
Strong demand for electronics
Leather emphasized the growing electronics industry in Taiwan. “Another important factor has been strong demand for electronics products, which we think is being boosted by an increase in investment in 5G infrastructure and demand for home-working equipment,” Leather said.
“While the boost won’t last forever, it has enabled Taiwan to ride out the worst of the global downturn relatively well," he added.
While Taiwan is showing strong economic performance, it still depends on exports and external demand. Meanwhile, growth may slow down this year due to disruptions from tourism and trade, according to Nick Marro, global trade lead at the Economist Intelligence Unit.
Even before the coronavirus pandemic happened, Taiwan’s economy revealed signs of strength amid the US-China trade war, and that helped Taiwanese President Tsai Ing-wen to be reelected this year.
For Marro, Taipei’s policy action plan in 2019 to help Taiwanese manufacturers move from China back home attracted a “surprising big amount of investments (going) back domestically." This trend is expected to continue.
However, Marro stressed the presence of risk as technology tensions between China and the US continue. Taiwan serves as a major supplier of electronics and semiconductor parts to both Chinese and American firms.
Taiwanese semiconductor giant TSMC had to make a stand when the US decided to restrict chip sales to Huawei, the Chinese telecommunication giant.
“We expect that story to continue and to feature as somewhat of a permanent fixture on the electronics industry landscape for Taiwan,” Marro told CNBC’s “Street Signs Asia” on Monday.
Political tensions
Beijing’s claim over Taiwan means that Taiwanese firms can access the mainland and foreign companies cannot — since China will try to remove its reliance away from American technology and imports, according to Marro. This situation may have a positive impact on Taiwan’s exports.
But “this is going to be a very difficult needle to thread,” Marro said.
“It is going to inevitably involve managing the compliance of Chinese regulatory regimes, U.S. regulatory regimes,” he added. “That awkward position is something that is going to bring likely lot of short-term disruptions — we are already starting to see that — and I would caution that the risks on horizon are only going to continue to grow.”
