Taiwan enters recession and Hong Kong grows with tourists – 05/05/2023 – Market

The Taiwanese economy shrank 3.02% in the first quarter of 2023, compared to the same period last year, and entered a recession, the island’s budget authority said. In the previous quarter, the contraction had been 0.41%.

It is the worst result in 14 years for the Taiwanese economy, the 21st in the world, and double the negative market projections.

Meanwhile, Hong Kong’s economy, 39th in the world, grew 2.7% in the first quarter, compared to the period in the previous year, and emerged from recession, after reopening contacts with mainland China, post-Covid. Market projections pointed to 0.5% growth.

The result was revealed by the city’s chief executive, John Lee, during a press conference this week.

Taiwan and Hong Kong, along with Macau and Singapore, are part of the group classified as Greater China. Its economic results are linked to the performance of the main member, mainland China, the second largest economy in the world.

Taiwan’s budget official credited the contraction to “weak external demand”, without elaborating. The agency Fitch pointed to be a result of “widespread weakness in demand for its electronic products and equipment for information and communication technology”.

The ASG consultancy underlines that the sale of products consumed by Taiwanese semiconductors has dropped worldwide.

For the future, a column in the financial daily Jingji Ribao comments that the Chinese tendency to prioritize “domestic supply” and the American policy of “nearshoring”, bringing production closer together, “are by no means a blessing for Taiwan”.

Previously disclosed data had already presented March as the seventh consecutive month of decline in its industrial production, concentrated in technology – with factories that produce 60% of semiconductors in the world and more than 90% of the most advanced ones.

According to the Dutch financial group ING, so far, Taiwan was the only economy in Asia that registered recession at the beginning of the year.

On the other hand, a report by S&P Global Ratings states that it is “probable that Taiwan’s industrial sector will gradually begin to feel the positive impact of China’s opening”, as in Hong Kong. “The economic momentum should strengthen throughout the year.”

HAPPY HONG KONG

The positive result in Hong Kong was attributed by John Lee to the “soft power” of the city, which brought tourists back in the first quarter, with the post-pandemic resumption of events with worldwide impact, such as the Art Basel fair and sports tournaments.

The local government has been running different marketing promotions, including the distribution of air tickets, for the time being restricted to Southeast Asian countries, and the reduction in cinema prices last weekend, which started the Happy Hong Kong campaign.

“With the rapid growth of the mainland’s economy and the accelerated recovery of the city’s aeronautical capacity, I believe that the second quarter will be better than the first and that this year’s economic performance will be better than last year,” Lee said.

French investment bank Natixis, with a presence in the city, reckons that the influx of tourists should help the sector, which has been “heavily affected” by Covid-19 restrictions.

“Even so, the pace of recovery is gradual”, he says. “Mainland tourist numbers are at 60% of pre-pandemic levels.”

The Dutch ING is even less optimistic, analyzing that a growth of 2.7% is “quite slow” given the negative base last year. If on the one hand it signals that Hong Kong “is no longer in a recession, it also reflects how weak the recovery is”.

The prospect of a US recession in the second half of the year worsens the situation, as the city is a base for Chinese exports to the US market. “This will put new pressure on the economy”, assesses ING.

If the long holidays at the beginning of the year, including this week, helped in the recovery of tourism, they would have negatively affected both production and shipments of goods in the city.

In any case, the result announced by Lee and the prospect of maintaining the resumption of tourism led Bloomberg Economics, which offers analysis to customers of the financial service terminal, to revise its projection for GDP growth in Hong Kong this year, from 3.2% to 5.2%.