When Typhoon Morakot slammed into Taiwan, 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. Following are questions and answers about the impact of the storm on the island's $390 billion economy, which was already suffering what may be its longest recession ever. First quarter GDP contracted by an annual 10 percent, the steepest on record. How will GDP be affected? Economists widely expect the typhoon to have a negative impact in third-quarter gross domestic product due to infrastructure damage affecting agriculture, tourism and several traditional industries. Analysts at SinoPac Holdings expect Taiwan's third-quarter GDP contraction to widen by another 0.5 percentage points from its current forecast for an around 2.5 percent annual fall, after factoring an estimated overall loss of T$15 billion ($460 million) for the overall economy. Standard Chartered, JPMorgan, Chinatrust Commercial Bank economists also predict the typhoon will deal a negative blow to GDP but did not provide specific forecast. But over the medium-term, analysts say the typhoon will be a positive factor for the economy due to reconstruction projects. “The typhoon is a negative impact on the economy for the current quarter, but in the medium term, that's not necessarily so, because the government is going to increase public spending for reconstruction,” said Qing Wang, an economist at JPMorgan. 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. CPI in July fell an annual 2.33 percent, logging the biggest fall in nearly 40 years and posting a sixth straight month of declines. Alan Liao, an economist from Chinatrust Commercial Bank, said he now expects 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 cabbage and papayas, raising prices of food, which constitutes a quarter of CPI. Farm-related losses have so far amounted to T$10 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 seen to be among the biggest losers. The typhoon disrupted production for several days at some oil-related companies, such as CPC Corp, 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 Taiwan's famed spots, such as Alishan mountains and Chihpen hotsprings area, have been cut off due to damaged roads and bridges. In contrast, the construction sector could gain over the next year or two as reconstruction speeds up in the disaster-hit areas. The construction sub-index has risen 6 percent since the typhoon hit a week ago, outperforming the TAIEX index's 3 percent gain during the same period. How will this affect private and government investments? The Taiwan government is proposing a special budget in the aftermath of the typhoon. Taiwan's premier said on Friday overall losses from the typhoon so far has amounted to T$110 billion ($3.3 billion) although he did not elaborate. Chinatrust Commercial Bank's Liao said private investments also usually rise sharply after a disaster because of reconstruction of buildings. 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.
