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Taiwan GDP Q2 2020

Taiwan: Economy records sharpest contraction in over a decade in Q2

According to a preliminary reading, GDP dropped 0.6% year-on-year in the second quarter, contrasting the 2.2% expansion tallied in the first quarter. Q2’s reading marked the sharpest contraction since Q3 2009 as private consumption and tourism took a massive hit from the Covod-19 pandemic.

The downturn was largely broad-based, with private consumption, public spending, fixed investment and exports all weakening. Private consumption spearheaded the downturn with the sharpest contraction, diving 5.0% year-on-year in Q2 (Q1: -2.2% yoy) as consumers put off non-essential spending and the services sector reeled from social-distancing measures. Similarly, government consumption dropped 1.0% in the quarter (Q1: +3.3% yoy) while fixed investment growth fell to 2.7% in Q2, representing the worst reading since Q2 2018 (Q1: +6.3% yoy).

On the external front, exports of goods and services contracted 3.5% in Q2, marking the worst figure since Q1 2016 (Q1: -2.4% yoy). This was chiefly driven by a collapse in tourist arrival and came despite healthy global demand for electronics which softened the blow. In addition, imports of goods and services fell at a sharper pace of 4.1% in Q2 (Q1: -3.8% yoy), indicating the worst result since Q4 2011.

On a seasonally-adjusted quarter-on-quarter basis, GDP declined 1.4% in Q2 from the previous period’s 1.0% fall, marking the steepest drop since Q4 2008.

Commenting on the second quarter result, Iris Pang, Chief Economist for Greater China at ING, said:

“Even though Taiwan successfully prevented the spread of Covid-19 locally, it could not avoid the damage done by the virus globally, which has hurt its exports, employment and wage growth, and therefore, domestic consumption […] The weak consumption was a result of weak exports of goods and services, including tourism. Even though electronic exports grew at an extraordinary pace, it could not prevent overall exports from stagnating.”

With regard to the outlook for the rest of the year, Pang added:

“Sentiment around consumption should continue to be weak for at least another quarter. This depends heavily on Covid-19 cases globally. If Taiwan’s export market continues to suffer from low domestic demand due to the damage done by Covid-19, Taiwan, as a small open economy, will feel the pain.

As the contraction of GDP is within our forecast range, we maintain our GDP forecast for Taiwan at -0.4% for the whole of 2020, and -1.0% YoY and -1.5% YoY for 3Q20 and 4Q20, respectively. The bigger contraction in the second half of the year is partly due to last year’s high base effect, and the uncertainty of Covid-19 damage to external demand for Taiwan’s products.”

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