Japanese Earthquake Will Cut Taiwan's Economic Growth Rate

Taipei, March 30, 2011 (CENS)--The massive Japanese earthquake will drive down Taiwan's economic growth rate by 0.11-0.2 of a percentage point, decreasing the gross domestic output by NT$15-20 billion, this year, said Christina Liu, minister of the Council for Economic Planning and Development (CEPD) yesterday (March 29).

As a result, Taiwan's economic growth rate will reach 4.72-4.81% this year, based on the economic growth forecast of 4.92% made by the Cabinet-level Directorate General of Budget, Accounting, and Statistics (DGBAS).

The earthquake also runs counter to price stability, boosting consumption of fuel oil and fuel gas to fill the shortage of power supply, which will drive up international energy prices and domestic oil prices, as well as consumer price index. In addition, Japanese nuclear power plant incident will prompt some countries to substitute coal and natural gas for nuclear power, further augmenting their prices.

Liu attributed the effect of the earthquake on Taiwan's economic growth to the impact of Taiwan's export to and import from Japan. The tally, however, excludes the mid-term effect of subsequent reconstruction works, possible order transfer from Japan, which will be insufficient to offset the negative effect, as well as the possible disruption of supply chains, according to Liu.

Taiwan's export to Japan will drop by US$1.084 billion this year, due to decreased import by Japan, with major industries likely to receive the pinch including chemical, metal and products, electronic products and components, semiconductor and products, and hotels/restaurants.

In addition, shortage of Japanese components and parts will slash Taiwan's industrial output by US$1.669 billion, affecting such major sectors as chemical products, metal and products, machinery, electronic products and components, and transportation equipment.

Hu Chung-ying, vice minister of the CEPD, noted South Korea will benefit from the earthquake, since its it has a horizontal competitive relationship with Japan, different from the relationship between Taiwan and Japan, which is one of vertical integration.

Consequently, Korean suppliers can take advantage of the incident to expand their market share by receiving substantial amount of orders transferred from Japan, at a scale much higher than that for Taiwan. By contrast, Taiwanese shipment has been affected by strained supply of Japanese materials and components/parts. However, in the mid- and long-term, Japanese firms may continue shifting the production of some key components and parts to Taiwan, for the sake of risk diversification.