Taiwan's economy grows slightly more slowly than expected in Q3 on COVID hit

© Reuters. FILE PHOTO: Cars can be seen driving by the metro station and highway in Taipei, Taiwan, October 26, 2021. REUTERS/Ann Wang

TAIPEI (Reuters) -Taiwan's economy grew at its slowest pace since the second quarter of 2020 in the July-September period as coronavirus curbs to contain a local COVID-19 outbreak hit consumption, but exports and investment remained strong.

Gross domestic product (GDP) grew 3.8% in third quarter from a year earlier after a 7.43% rise in the April-June period, preliminary data from the statistics agency showed on Friday, coming in just below the 4% increase forecast in a Reuters poll.

That was the smallest growth since the second quarter of 2020, when the economy gained 0.35%.

"(GDP growth was) mainly attributed to better-than-expected domestic investment as well as continuous expansion of exports," the agency said in a statement.

"But consumption was weak due to the impact from epidemic curbs, which partially offset growth."

As a key hub in the global technology supply chain for giants such as Apple Inc (NASDAQ:AAPL), Taiwan's economy has outperformed many of its regional peers during the COVID-19 pandemic as it benefited from robust demand for its tech exports during the work-and-study-from-home trend.

Government restrictions to contain a rise in COVID-19 cases from mid-May helped trigger a 5.49% decline in consumption in the third quarter. But economists expect consumption to rebound as the government has since lifted most of those restrictions, having managed to contain the outbreak.

"With the recent COVID-19 outbreak under control and the vaccine rollout gaining momentum, consumption should recover," said Gareth Leather, senior Asia economist at Capital Economics.

Meanwhile, Taiwan's economy continues to benefit from strong global demand for its high-tech goods and chips, while domestic investment has also underpinned economic activity.

Total exports soared 30.12% year-on-year in U.S. dollar terms in the third quarter, the agency said, adding investment in manufacturing capacity expansion and renewable energy was increasing, without providing further details.

"A backlog of orders will keep Taiwan's exporters busy for some time yet. Meanwhile, the surge in demand for semiconductors is leading to a boom in investment, which will continue to support GDP," Leather added.

2021 OUTLOOK

ANZ said it had revised higher its GDP growth forecast to 6.0% in 2021 thanks to strong investment in the third quarter.

That was in keeping with official forecasts, with both the government and the central bank betting on 6.0% growth in 2021. The economy expanded 3.12% in pandemic-hit 2020.

Statistics official Wu Pei-hsuan said as long as international demand for the island's products persists, both Taiwan's exports and production could keep their "strong growth momentum" next year.

Pent-up demand in countries emerging from lockdowns has boosted sales, while microchip prices are surging due to a global shortage.

A global shortage of chips for everything from cars to consumer electronics has also bolstered demand for made-in-Taiwan semiconductors, with producers rapidly expanding capacity.

One potential risk could be a slowdown in the economy of China, Taiwan's top trading partner. The world's second-largest economy grew at its slowest pace in a year in the third quarter, hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

Taiwan's central bank has kept interest rates at record lows since the last cut in March 2020, and analysts say it is unlikely to increase them until later next year at the earliest, and only after an eventual U.S. rate hike.

Taiwan's revised GDP figures, including growth estimates for the full year, will be released in November.