(Bloomberg) — Taiwan’s strongest economic expansion in a decade cooled in the first quarter, with lockdowns in China posing new challenges to growth in the months ahead.
Gross domestic product rose 3.06% in the January-to-March period from a year earlier, down from 4.9% in the previous three months, official data showed Thursday. That was higher than the 2.8% predicted in a Bloomberg survey of economists.
While the slowdown was partly due to the high base of comparison from the 9.2% expansion a year ago, one concern going forward is how much Beijing’s strict Covid Zero strategy could impact production at Taiwanese manufacturing plants operating in China.
While Taiwan’s growth in the first quarter did not see much of a hit from China lockdowns, that could change in the coming months, according to Wu Pei-hsuan, a senior executive officer at Taiwan’s statistics bureau.
“There are a lot of Taiwanese-owned factories in areas such as Jiangsu and Kunshan and many of them have had to reduce production or shut down,” Wu said. “This will have an impact on the second-quarter figures.”
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
Further clouding the outlook is Taiwan’s own major omicron outbreak, with cases soaring past 10,000 on Thursday. The rising case numbers appear to have spooked consumers with domestic consumption almost unchanged at 0.14% in the first quarter.
Taiwan experienced some headwinds last quarter, including widespread power outages that dampened industrial output in March. Growth in industrial production for that month slowed to 2.2%, the lowest since May 2020.
The fragile power supply is likely to be an issue as the weather gets warmer, Iris Pang, chief economist for Greater China at ING Groep NV said in a note following Thursday’s data. She expects there to be some blackouts during the second quarter.
Still, the government remains bullish on the outlook for 2022, raising its full-year forecast by the slightest of margins to 4.43% from its previous forecast of 4.42%.
(Updates with comments from officials and economists, as well as more official data.)
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