Taiwan: Covid-19 has hit Taiwan, a rare ‘winner’ of the pandemic until now

Event

As the rest of the region, Taiwan has been experiencing its most severe Covid-19 wave. In its attempt to contain the spread of the Delta variant, partial lockdown measures have been introduced, and social distancing measures and travel restrictions have been tightened. As vaccination is lagging far behind – with less than 9% of the population having received one vaccine dose – and amid a geopolitical vaccination policy, the US and Japan have already sent millions of vaccine doses to Taiwan. Meanwhile, after a long political honeymoon in 2020, the government is under criticism for its management of Covid-19 and the introduction of various containment measures. President Tsai announced that a domestic vaccine will soon be available.

Impact

Taiwan is no longer a global exception of an open economy without lockdown in the Covid-19 era. It is worth pointing out that the number of deaths remains among the lowest in Asia (and worldwide) and that the number of new daily contaminations has fallen to less than 100 at the end of June. Still, the surge witnessed in Taiwan since May probably shows prevention fatigue, the lack of preparedness for further waves due to complacency, and how hard it is to keep the pandemic under permanent control. As a result, vaccination appears to be the only way to a potential return to normal life and business activity since the pandemic outbreak. Acceleration of the vaccinations is therefore essential and explains the authorities’ request to Taiwan’s closest partners to obtain the much-needed vaccines. The DPP-led government and Taiwan’s president Tsai Ing-wen are indeed under popular pressure to prevent the pandemic from spreading further and affecting people’s lives. Nonetheless, domestic political risks appear to be limited because of the government’s strong majority and due to the fact that the next presidential and legislative elections are only scheduled in January 2024. In the short term, containing Covid-19 is the government’s priority, also to mitigate the pandemic’s economic impact notably on tourism and private consumption. The economy, boosted by IT exports since Covid-19 broke out, is indeed hit at the same time by a record-long drought harming the production of semiconductors for which Taiwan is a world leader and an essential supplier to meet the rapidly rising global demand. Hence, strong real GDP growth forecasts of 4.7% in 2021 (after a solid 3.1% in 2020) could be revised downward later this year. This being said, exports are expected to be resilient and to continue on their impressive growth path in a context of sustained global demand for technology products and components. Therefore, after very strong electronics exports were recorded until the Covid-19 surge of mid-May, the economic outlook remains positive for the whole year 2021. The good momentum can also be noticed in the largely positive evolution of the Taiwan dollar over the past year. Hence, in the coming months, Credendo’s business environment risk is likely to remain stable at a strong B/G. The same optimism applies to the short-term political risk (in 1/7) which reflects the external liquidity situation. Indeed, with its massive and rising foreign exchange reserves that cover 1.5 years of imports and 2.5 times its external debt, Taiwan remains a strong net foreign creditor.

Analyst: Raphaël Cecchi – r.cecchi@credendo.com