Economic impact from Covid-19
The ECCT arranged a webinar with Dr Roy Lee, Senior Deputy Executive Director of the Taiwan WTO and RTA Center at the Chung-Hua Institution for Economic Research (CIER). The speaker gave a presentation on the likely scenario for the Covid-19 pandemic’s impact on Taiwan’s economy and answered questions from the audience. Read the full event report here.
Lee said that he expected Taiwan to follow a similar trajectory as South Korea experienced during the pandemic in 2020. South Korea saw a sharp drop in GDP at the start of the pandemic, followed by a sharper rebound, although private consumption remained subdued, which dragged down overall GDP. Since Taiwan is also an export-led economy, it has similarities with South Korea but since export demand is currently still strong, unlike Korea’s experience in 2020, Taiwan is likely to see continued export growth, even in the second quarter of 2021 and export trade is likely to be the main positive contributor to GDP. Imports may decrease but could be boosted by imports of components for the export sector. Domestic consumption, on the other hand, is most likely to decline. Even though more people are shopping online, overall consumption is likely to decrease. Investment is likely to remain flat or even rise given continuing supply chain diversification. Meanwhile public expenditure will rise from the government’s stimulus measures. In a worst-case scenario, public spending could be the only element of GDP that rises.
According to Lee, if Taiwan manages to contain the spread of the pandemic (as indicated by a falling number of cases over the past few days), there is reason for optimism. Lee expects the worst impact to be in 2Q21 and for things to improve in 3Q21.
However, he added several caveats or conditions that have to be met for the optimistic scenario: 1) There is no “de jure” (or official) level 4 lockdown. (Taiwan already has some de facto level 4 restrictions in place but a de jure level 4 would shut down factories and most other businesses, resulting in a much more severe impact than current level 3 restrictions); 2) the health impact is contained with limited recurrence until population-wide vaccinations have taken place; 3) manufacturing/export sectors do not suffer large-scale impacts; 4) global demand is able to offset the drop in consumption.
Even though we are likely to see a best-case scenario, Lee said that there will be a long-term impact from the pandemic and there is a need to be prepared for future possible pandemics. Therefore, Taiwan needs to adjust to the new normal by strengthening the resilience of supply chains, shoring up healthcare and social welfare systems, implementing digital transformation and making adjustments to work and the workforce, among other measures.