(Bloomberg) — Taiwan’s strongest economic expansion in a decade likely cooled in the first quarter, and China’s Covid lockdowns may pose challenges to growth in the months ahead.
Gross domestic product is forecast to have grown 2.8% in the January-to-March period from a year earlier, according to a Bloomberg survey of 14 economists. The government is scheduled to release the data Thursday afternoon.
That rate would be the slowest since the second quarter of 2020, when the pandemic was spreading across the globe.
Last year’s first-quarter figure also got an enormous boost during the global computer chip shortage, when the demand for components from Taiwan’s powerhouse technology firms skyrocketed. GDP grew 6.3% for all of 2021, the fastest pace since the economy rebounded in 2010 from the global financial crisis.
Taiwan experienced some headwinds during the most recent quarter, including widespread power outages that dampened industrial output in March, according to Iris Pang, chief economist for Greater China at ING Groep NV. Industrial production for that month fell to 2.2%, the lowest since May 2020.
The bigger concern going forward is how much Beijing’s strict Covid Zero strategy could impact production at Taiwanese manufacturing plants operating in China.
“It’s possible that the China lockdowns had already begun to weigh on first-quarter GDP,” Brian Tan, senior regional economist at Barclays Bank Plc, said in a message. “The second quarter will likely be more challenging as the lockdowns would already be fully implemented.”
Taiwanese technology firms are a major contributor to the economy, with electronic components and products accounting for 54.9% of exports last month.
Big names — including Taiwan Semiconductor Manufacturing Co. Ltd, Foxconn Technology Group and Pegatron Corp — have plants in parts of China that have been impacted by lockdowns to contain the biggest outbreak of Covid there since early 2020.
So far, all three of those firms have said they were able to keep operating in China, largely by using so-called closed-loop systems. Foxconn, the primary assembler of iPhones, said recently its plant in central China is following those rules, where workers live on site and are tested frequently.
Read more: Microsoft, Chipmakers See Supply-Chain Hit From Xi’s Lockdowns
Taiwanese economics minister Wang Mei-hua played down the impact of the Chinese lockdowns, but did say they were making life difficult for firms that manufacture in China.
“China’s Covid policy has definitely put pressure on many Taiwanese companies,” she said at an industry exhibition in Taipei on Wednesday, noting that many have “large production capacities” in cities under lockdown, including Shanghai and Kunshan.
“With high inflation globally and supply chain disruptions in Mainland China, Taiwan will face more headwinds in growth,” wrote Alicia Garcia Herrero and Gary Ng, economists at Natixis SA, in a note. They forecast Taiwan’s economy to grow 3.4% in the first quarter, though have lowered their 2022 expectation to 4.2% growth from 4.6%.
The health authorities are also dealing with their first major omicron outbreak, they noted, which may cause further pressure.
“Taiwan will see a limited impact if it moves toward the de-facto ‘living-with-virus’ model and lockdowns in Mainland China end soon,” the economists added.
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