TAIPEI — Taiwan’s economy unexpectedly shrank 0.73% in the April-June quarter from a year earlier, in line with regional peers that are contracting due to the global slowdown stemming from the COVID-19 pandemic.
The decline, announced by the government on Friday, compares with a forecast of 0.55% growth in a Reuters survey of economists.
The contraction stems from the economic hit from the virus and its impact on tourism, causing domestic consumption to fall 5.13%. The number of travelers entering Taiwan dropped more than 99% in the second quarter. The country closed its border for foreigners in mid March.
Taiwan’s figures compare with the U.S. economy that collapsed at an annualized 32.9% in the second quarter, South Korea which contracted 3.3% and Hong Kong’s 9% fall. China, meanwhile, recovered to 3.2% growth after a first quarter contraction.
The trade-reliant island’s essential position in the world’s electronics industry and success in containing the coronavirus outbreak helped prevent a bigger contraction.
Taiwan, which has had less than 500 COVID-19 cases since the onset of the pandemic, has been helped by a boom in demand for electronics stemming from an increase in distance learning and telecommuting.
The island has lured more than 1 trillion New Taiwan dollars (about $34 billion) in inbound investment since the trade conflict escalated in 2018, as many Taiwanese manufacturers moved production home from China to avoid punitive U.S. tariffs or increased domestic capital spending. The Economics Ministry estimates that more than NT$300 billion of investment will be made this year.
The recent introduction by President Tsai Ing-wen’s administration of vouchers worth NT$3,000 is expected to support domestic demand, the government’s statistics and accounting body said.
Although overall exports fell 3.8% in June from a year earlier — the fourth straight monthly drop — electronics components, which made up more than half the total exports, grew as much as nearly 24%, according to the Ministry of Finance. Shipments of semiconductors reached a record high of more than $10 billion in June alone.
Darson Chiu, an economist with the Taiwan Institute of Economic Research, told the Nikkei Asian Review that both the U.S. and China needing Taiwan’s electronics supply chain is supporting the island’s economic growth.
“Taiwan’s electronics and chipmakers rode on the work-from-home wave which boosted data center servers, computers, and other electronics sales in the first half of 2020, and the sector also benefited from China’s hope to buy more non-U. S. components, Chiu said.
Chiu, however, added there were uncertainties ahead for Taiwan’s economy as no one knows when the pandemic will end.