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Economic and biomedical outlook

The ECCT’s Healthcare Sustainability committee arranged a lunch on the topic “Prospects for the overall economy & the biomedical industry” featuring guest speaker Dr Wang Jiann-Chyuan, Vice President of the Chung-Hua Institution for Economic Research (CIER).

In his presentation, Dr Wang noted that Taiwan’s economy had benefited during the pandemic from the trends towards remote working learning and medical care, the increasing demand for entertainment, all of which increased the demand for 3C products, information security and cloud computing. This led Taiwan’s per capita income to increase by US$7,000 during the pandemic, although this rise was not spread evenly as average wages in Taiwan did not increase significantly. Rather, it was the earnings of those exposed to the above-mentioned industry sectors that saw sharp increases in their earnings.

What Wang referred to as the “winner’s curse” that had benefited Taiwan for more than two years, began to unravel in the second half of 2022 as orders for pandemic-related products began to slow down. Meanwhile the impact of geopolitical events, such as the war in Ukraine began to take a toll.

It is not yet clear if inflation has peaked (oil, industrial metals and grain prices are already well off their highs) and will continue to fall or if central banks’ hiking of interest rates over the past year will have the desired effect of putting the brakes on inflation or if the economy can maintain growth with elevated interest rates? Even if commodity price inflation is brought under control, service sector prices are rising mainly due to wage inflation. (Wang showed a chart indicating a sharp increase in US service sector inflation over the past two years.) There is danger that raising rates too far too fast could lead to stagflation. However, high interest rates in the US compared to other countries could also result in capital outflow from these countries. There is also a chance of fallout from the recent banking sector failures in the US.

All in all, rising inflation and interest rates and the Ukraine war are likely to result in slower economic growth in most countries in 2023. In the US, rate hikes and inflation are expected to slow but the labour market is expected to remain hot, resulting in a rolling recession or a slow decline (slowcession). Europe is expected to continue to experience the impact of higher energy prices due to the war in Ukraine. In Japan, the appreciating yen is expected to ease inflationary pressures while the return of tourists will boost the economy, although overall growth will not be high. China’s economy is expected to bounce back this year from the pandemic, but growth is likely to be held back by the property market bubble and excessive local government debt, as well as external factors.

Meanwhile Taiwan will be impacted by the drop in exports since the second half of 2022 and extending into the first half of 2023. If exports do not pick up sufficiently in the second half, growth will need to be supported by investments and consumer spending.

It remains to be seen how long the downturn in the business cycle will last. China has been the engine for global economic growth since the global financial crisis in 2008 but is now facing headwinds, both from outside as well as internally. Externally, the US is determined to prevent China from getting access to high end semiconductors from the west (or the equipment that makes them). This will force China to develop technology locally, which will take time. Meanwhile, Chinese authorities have many other domestic issues to deal with, including the real estate bubble, a shrinking birth rate and an ageing population. According to Wang, the US hopes that India will eventually replace China as the world’s factory and growth driver.

As for Taiwan, there is an argument to be made that Taiwan is too dependent on high tech exports, particularly semiconductors given that they account for a disproportionately large share of Taiwan’s manufacturing, exports and overall GDP.

On the biomedical industry, Wang said that Taiwan is doing well in upstream and downstream drugs but not so well in mid-stream. He noted that the government is beginning to pay attention to biotech, including new regulations for biomedicines. However, the national health insurance system’s focus on cost reduction will make it difficult for biomedicine producers to make profits, and the difficult environment has led to a decrease in investment in R&D in the sector over the past decade.