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Taiwan’s government has pledged to try to keep the world supplied with chips even as COVID-19 cases escalate, while anticipating a limited impact from its worst outbreak so far.

If only domestic consumption is hit and the outbreak ends by June 30, gross domestic product growth may be cut by 0.16 percentage points, National Development Council Minister Kung Ming-hsin said at a briefing in Taipei on Tuesday. If the outbreak extends into the third quarter, the hit could be 0.53 points. But the economy could still expand over 5% this year, said Kung, whose agency isn’t responsible for assessing GDP.

The government in February raised its forecast for GDP growth to 4.64%, betting that a global scramble for semiconductors will boost exports. But that was before an explosion of coronavirus cases this month, which has compounded the impact of a worsening drought and periodic power cuts.

U.S. officials and executives have voiced concerns about the world’s dependence on chips from the island, which hosts the best facilities of industry linchpins Taiwan Semiconductor Manufacturing Co. (TSMC) and ASE Technology Holding Co.

Taiwan, which has recently seen cases surge past 200 per day, has closed schools, curbed social gatherings and shut many adult entertainment venues, museums and public facilities. Businesses and factories are operating, but the government has required them to allow parents to take time off to care for their children and to ensure adequate social distancing and mask-wearing.

"The impact on consumption is obvious, because restaurants and the service sector have been required to observe more strict social distancing,” said Rick Lo, Fubon Financial Holding Co.’s chief economist. "In manufacturing, for now it’s still safe, but if the situation gets worse then workers might not be able to work in the factories. The downside risk is increasing and it really depends on how quickly the outbreak is controlled.”

Kung said the government is asking companies to adopt various measures to help fight the coronavirus, including setting up task forces to monitor developments, acting to control the flow of staff and visitors, and tightening controls on the movement of migrant workers.

Taiwan’s benchmark stock index swung between gains and losses on Wednesday. The gauge has fallen almost 9% from an April peak amid concerns over the economic impact of escalating COVID-19 cases, subsequent movement curbs and forced selling by retail investors facing margin calls from brokerages.

TSMC, which dominates advanced chip production, yesterday said its workers are operating in separate teams. Face-to-face meetings have been curbed, and nonessential vendors are banned from its facilities.

Keeping up production is critical not just for Taiwan’s growth, as the island is the world’s main supplier of advanced computer chips, which are in demand as the pandemic up-ends working arrangements and consumer goods become smarter.

When asked if Taiwan will prioritize orders from U.S. automakers as Washington is requesting, Kung said they’ll try to meet global car chip orders as much as possible.

Chip companies have tightened controls on the movement of staff, including not allowing them to travel between different sites, Chou Chung-pin, secretary-general of the Industrial Development Bureau at the Ministry of Economic Affairs, said at the same briefing.

Yet there are already concerns about the outbreak’s impact on exports, the value of which surged 38.7% in April from a year earlier to the second-highest total ever after March’s record, mainly driven by surging chip sales.

China Airlines Ltd. last week said its airfreight capacity will be cut by 10% as a result of new coronavirus-related rules, which were imposed after its pilots were linked to the rapidly growing outbreak.

Then there’s the drought, which is forcing farmers and chip companies to try and lock in supplies of water, leaving hydropower plants operating at limited capacity. A dual coal- and gas-fired plant went offline Thursday due to a technical error, and consumers across the island yesterday got mobile phone alerts ahead of yet another round of rolling blackouts.

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