Taiwan Holds on Rates, Projects Slowest GDP Growth Since 2009
(Bloomberg) -- Taiwan’s central bank expects the economy to grow this year at the slowest pace since the global financial crisis as trade struggles more than initially anticipated and China’s slowdown weighs on activity, muddying the outlook ahead of a critical presidential election.
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The monetary authority on Thursday cut its forecast for gross domestic product growth this year to 1.46% from 1.72%. That would be the weakest rate of expansion since 2009, when the economy contracted 1.61% from the prior year.
The grim forecast came alongside an announcement that the central bank would keep borrowing costs unchanged at 1.875% for a second quarter, matching expectations among every economist surveyed by Bloomberg. The central bank struck a hawkish tone, though, saying Thursday that rates will likely stay higher for longer.
“Exports performed worse than we had expected. The data show global end-user demand wasn’t as good as we had imagined,” central bank Governor Yang Chin-long told reporters at a press briefing. “We’ve had to cut our growth forecast again.”
Thursday’s decision comes as Taiwan ramps up for what is shaping up to be the most hotly contested election in decades. Slowing growth, low wages and high property prices are all set to be crucial issues in the campaign as four candidates compete to succeed President Tsai Ing-wen, who will step down due to term limits. The vote has geopolitical ramifications: The ruling party is determined to maintain Taiwan’s political independence, and opposition that sees closer ties with China as the only viable path.
The Taiwan dollar has also come under pressure, dropping on Thursday for the fifth consecutive session. Before the central bank’s announcement, the currency fell 0.3% to 32.11 per dollar at the close, a 10-month low.
“The revisions to the economic projections suggest growth concerns rising versus the last meeting,” said Eddie Cheung, senior emerging markets strategist at Credit Agricole CIB.
Inflation appears to be in check for now — despite a weather-related spike in consumer prices last month — after the government took steps including curbing fuel and electricity costs. The central bank’s consumer inflation projections were little changed at around 2.2% for 2023.
Even so, some central bank board members expressed concerns over inflation at this meeting, Yang said. He added that Taiwan “can’t take inflation uncertainty lightly.”
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“The language suggests that they will stay on a prolonged hold” with interest rates, said Ho Woei Chen, economist at United Overseas Bank Ltd. While she noted the central bank sees inflation easing gradually, “there are definitely concerns over the growth.”
While Yang said that exports and private investment should do better next year, there are still uncertainties to watch out for. He cited spillover effects from the US Federal Reserve’s monetary policies, along with China’s economic performance and trade conflicts between Washington and Beijing.
The central bank is scheduled to hold one more board meeting in December ahead of January’s election.
--With assistance from Philip Glamann, Tao Zhang and Chester Yung.
(Updates to include more context from the presser, analyst comments, market moves.)
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