Sars hits Taiwan economy as shoppers stay home

In just a few short weeks, Sars has done what two years of economic weakness failed to do - empty the shopping malls.

The crowds that throng glitzy department stores after work and on weekends have disappeared since a cashier at one of the top brands, Sogo, came down with the virus.

In Taipei's Hsimenting market, usually throbbing with trendy teenage punks, nine out of 10 stores have been closed because of a nearby public housing estate that was sealed because of a Severe Acute Respiratory Syndrome (Sars) outbreak.

"Who dares go shopping now?" asked Frank Lee, a young banker who said he stays at home on weekends and only ventures out for a quick joyride on his scooter out of sheer boredom.

The number of probable Sars infections in Taiwan has jumped to 264 from less than 30 three weeks ago. Deaths have risen to 34 from zero in the same period.

Private consumption contributes a whopping 60 per cent of Taiwan's gross domestic product, even more than exports.

A downtown hotel has started selling food in takeaway boxes on the street in a vain attempt to make some money as its restaurants and rooms stand empty.

Things are so bad that some members of the General Chamber of Commerce actually suggested a 10-day island-wide business shutdown to contain the disease, a proposal that was quickly knocked down by others in the organisation.

Economists, who were earlier watching for the main economic hit to come from slowing China demand for Taiwan exports, now warn of deflation risks.

"Chances are high that Taiwan will see negative growth in consumer prices for the third straight year and deflation could be a major economic issue," said Wu Chung-su, an economist at a state think tank, Academia Sinica.

Before Sars and Iraq war hit, the government had forecast a mild rise in the consumer price index of 0.77 per cent in 2003, after a 0.2 per cent fall in 2002 and 0.01 per cent fall in 2001.

The official forecast for CPI was cut to 0.4 per cent growth after the Iraq war broke out, but private analysts now say even that is too optimistic.

"Falling prices will hurt businesses. Earnings then fall, which will force companies to scale back investments. What's more, lower wages will affect spending by individuals," said Ma Jun, an economist at Deutsche Bank.

Ma cut his estimate of Taiwan's CPI to a 0.3 per cent drop this year from a 0.5 per cent rise. Consumer prices fell 0.19 per cent year on year in the first four months of 2003.