Taiwan: Economic growth slumps to four-year low in Q1 as pandemic hampers domestic activity
April 30, 2020
The economy grew 1.5% in Q1 2020 compared to the same period a year earlier, according to an advance GDP estimate, slowing from the 3.3% increase recorded in Q4 2019 and marking the slowest rate of growth since Q2 2016. On a seasonally-adjusted quarter-on-quarter basis, activity shrank 1.5% in Q1 2020, contrasting the 1.9% expansion in Q4 2020.
The domestic side of the economy spearheaded the slowdown: Private consumption shrank 1.0% in Q1, contrasting Q4’s 2.6% growth and marking the first quarterly contraction since Q2 2009, as households curtailed travel, cultural and recreational spending due to the pandemic. Furthermore, gross capital formation growth slowed markedly to 3.1% in Q1 from 10.5% in Q4, further weighing on domestic output. Contrastingly, however, government consumption accelerated to 3.7% in the first quarter (Q4 2019: +2.0% year-on-year) as fiscal stimulus measures totaling USD 35 billion swelled public spending.
On the external side, exports of goods and services shrank 2.9% in Q1, contrasting the 2.6% growth in Q4 and marking the worst contraction since Q2 2016. The downturn was primarily driven by falling services trade, with a sharp decrease in tourist arrivals dragging on the reading. Similarly, imports fell 4.9% in the quarter (Q4: +4.4% yoy), marking the sharpest decrease since Q4 2011. As a consequence, the external sector contributed 0.9 percentage points to economic growth in Q1, contrasting the 0.6 percentage-point detraction in Q4.
Looking ahead, economic activity is likely to contract in the second quarter of this year, as slackening demand weighs heavily on the external sector. However, the country’s successful response to the viral outbreak should see Taiwan fare reasonably well compared with regional neighbors.
Author: Stephen Vogado, Economist