China - Taiwan Province

Q+A - How is Typhoon Morakot affecting Taiwan's economy?

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By Lee Chyen Yee

TAIPEI, Aug 21 (Reuters) - When Typhoon Morakot slammed into Taiwan in early August, roads were blocked, villages and farmland laid to waste and hundreds of people buried by massive landslides in the south -- causing losses totalling hundreds of millions of dollars.

See [ID:nTP164015] for a typhoon story and [ID:nTP165081] for the latest GDP poll.

Following are questions and answers about the impact of the storm on the island's $390 billion economy.

HOW WILL GDP BE AFFECTED?

Economists widely expect the typhoon to have a negative impact on third-quarter gross domestic product due to infrastructure damage affecting agriculture, tourism and several traditional industries.

JPMorgan expects third-quarter GDP to fall by 3.6 percent from a year earlier, wider than its previous forecast for a 3 percent fall, while SinoPac Holdings predicts the contraction to widen by another 0.5 percentage points from its current forecast for an around 2.5 percent annual fall.

The economy contracted 7.5 percent in the second quarter from a year earlier, easing from a record 10.1 percent in the previous quarter. GDP expanded for the first time in over a year in the quarter on an annualised basis.

Over the medium-term, analysts say the typhoon will be a positive factor for the economy because of reconstruction projects, though they said it would depend on how fast the government approved funds for infrastructure projects.

"It depends on whether there are problems in deploying government funds for infrastructure and that's why we left out the reconstruction factor in our forecasts," Cheng Cheng-mount, an economist at Citigroup.

The around T$100 billion earmarked for typhoon reconstruction over the next three years is still awaiting parliamentary approval.

The statistics agency said on Thursday that if they factored in the reconstruction budget, their GDP forecast for this year would be a 3.75 percent contraction instead of their official estimate for a 4.04 percent fall.

WHAT IS THE IMPACT ON CONSUMER PRICES?

Food prices are already on the rise as the typhoon devastated the island's agricultural areas and some analysts expect this to push up the consumer price index (CPI) in August after it fell an annual 2.33 percent, the biggest fall in nearly 40 years.

Alan Liao, an economist from Chinatrust Commercial Bank, said he expected the CPI to rise 0.1 percent in August from a year earlier, up sharply from the previous forecast of a drop of 2.1 percent.

Taiwan's south is home to many farmers, and the heavy rains have crimped supply of their produce, such as cabbages and papayas, raising prices of food, which constitutes a quarter of CPI. Farm-related losses have so far totalled T$14 billion.

But any positive impact from higher food prices are likely to to temporary, with the CPI expected to return to its downtrend as the export-reliant economy struggles from weak demand from key markets.

WHICH SECTORS WERE HARDEST HIT?

The agriculture and tourism sectors are expected to be among the biggest losers. The typhoon disrupted production for several days at some oil-related companies, such as CPC Corp [CHIP.UL], that have facilities in the south, but the impact overall has been limited.

Infrastructure and farm losses have totalled about T$30 billion so far, analysts said.

The tourism sector will likely see losses of about T$4.5 billion as attractions such as the Alishan mountains and Chihpen hotsprings area have been cut off by damage to roads and bridges.

In contrast, the construction sector could gain over the next year or two as reconstruction speeds up in disaster-hit areas.

HOW WILL THIS AFFECT PRIVATE AND GOVERNMENT INVESTMENTS?

The Taiwan cabinet has proposed a special budget of about T$100 billion over the next three years in the aftermath of the typhoon, but the plan is still awaiting parliament approval.

Chinatrust Commercial Bank's Liao said private investments also usually rose sharply after a disaster because of building reconstruction.

The annual growth of private investments after a devastating typhoon in 1996 climbed steadily to 12.5 percent in the first quarter of 1997 from just 3.5 percent in the third quarter of 1996.

WHAT ARE THE POLITICAL REPURCUSSIONS?

President Ma Ying-jeou, who won an election in 2008 with a pledge to lift the economy, has come under fire from the opposition party and residents in the south for the slow response in operations to rescue hundreds still stuck in remote villages after devastating mudslides.

Ma's typhoon response could drain support for his Nationalist Party (KMT) in local elections in December, which will give an indication of the political future for both him and his party, analysts said.

Ma, whose popularity has plunged to the lowest point since he came into office in May 2008 after the typhoon, is under pressure to reshuffle his cabinet.

(Additional reporting by Jeanny Kao; Editing by Chris Lewis & Kazunori Takada)

Reuters - Thomson Reuters Foundation
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