Taiwan’s economic growth will likely slow to its weakest in five years in 2020 as consumption and tourism take a hit from the coronavirus pandemic, but the economy is set to rebound next year on improved demand for the island’s exports.

Taiwan’s economy, a key part of the global technology supply chain, is expected to grow 1.56% this year, the Directorate General of Budget, Accounting and Statistics said on Friday, again downgrading its outlook.

In May, it forecast full-year growth of 1.67%, its lowest since 2015.

Gross domestic product (GDP) shrank by a revised 0.58% in the second quarter from a year earlier, slightly up on the preliminary decline of 0.73%, the agency said.

The agency said the pandemic has hit the island’s consumption, especially the services sector and tourism, but still-strong global demand for electronics helped offset some of the impact, thanks to the growing need for telecommuting as more people work from home to reduce the risk of infections.

The agency projected full-year growth of 3.92% next year, its fastest pace since 2014, citing a “significant recovery” in external demand and manufacturers moving production home from China amid a supply chain reshuffle following Sino-US tensions and the pandemic.

Consumption dropped 4.98% in the second quarter from a year earlier at its sharpest rate on record.

While Taiwan has not gone into total lockdown to contain the virus due to relatively successful measures that prevented its rapid spread, the government has repeatedly warned of uncertainty for the economy and is rolling out a stimulus package worth T$1.05 trillion ($35.79 billion).

In addition to the virus uncertainty, analysts say renewed US-China tensions could spell extra trouble for Taiwan’s electronics exports, a bellwether of demand for global tech giants such as Apple.

The statistics agency forecast exports in 2020 would drop 0.1%, but recover sharply next year to expand 6.7%.

It also slightly raised its consumer price estimate for 2020 to a drop of 0.19% from a 0.32% fall previously.

Meanwhile, Foxconn, the world’s largest contract electronics manufacturer, posted a better-than-expected quarterly profit and forecast its smartphones business would see sustained revenue weakness but at a slightly slower pace this quarter.

The Taipei-based company, however, is expected by analysts to boost its revenue recovery in the months ahead, underpinned by the expected launch in autumn of a new lineup of iPhones by Apple Inc, a major client of Foxconn’s. Foxconn reported a net profit of T$22.9 billion ($778.54 million) for the second quarter ended June. That was up 34% from a year earlier and better than a consensus estimate of T$17.95 billion drawn from 13 analysts polled by Refinitiv. It said the stronger than expected figures were mainly driven by the server and computing businesses, while revenue from its key consumer products, mainly smartphones, dropped more than 15% from a year earlier in the second quarter as the coronavirus pandemic hit global electronics demand.

Reuters