Taiwan's central bank raises growth outlook amid trade boost

Published Thu, Dec 19, 2019 · 11:31 AM
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[TAIPEI] Taiwan's central bank joined the growing ranks of economic forecasters raising their growth outlooks for the export-dependent island economy as hopes grow the US and China could bring an end to the trade war.

The central bank raised its 2019 growth forecast to 2.6 per cent from the 2.4 per cent it predicted in September. It also upped its prediction for next year to 2.57 per cent from 2.34 per cent.

Policymakers decided to hold the benchmark interest rate at 1.375 per cent, where it has been since June 2016.

All 30 economists surveyed by Bloomberg predicted no change.

Governor Yang Chin Long says the central bank will enter the currency market if there are "huge" capital flows in a short period of time.

If the US doesn't change its criteria, Taiwan could easily return to the US Treasury's currency manipulation watch list but Taiwan is still in communication with US.

"There's a chance the situation will change from the second quarter next year," said Jih Sun Securities economist Jordan Su following Thursday's announcement.

"If the Taiwan dollar appreciates past NT$30 to the US dollar, the central bank may cut rates to ease the Taiwan dollar's gain. But on the other hand, if the economy performs better than expected in the second half of the year and the full-year growth forecast reaches 2.8 per cent or more, the central bank could raise rates from the third quarter onward."

"The Taiwanese economy is showing exceptional resilience despite the US-China trade tensions and weak growth in the region, thanks to trade redirection and solid investment related to semiconductors and reshoring," Societe Generale economist Michelle Lam said ahead of Thursday's rate decision. "We expect these drivers to continue to take hold in 2020."

The reshoring of investments by Taiwanese companies amid the US-China trade war and burgeoning demand for 5G telecommunications equipment are improving the outlook for the economy. Economists raised their growth forecasts to 2.5 per cent for 2019 and to 2.3 per cent for 2020 in the latest Bloomberg economic survey.

Taiwan's exports rose 3.3 per cent in November, the most in more than a year as shipments to China recovered, helped by companies gearing up for the roll-out of 5G telecommunications next year.

The Taiex index is within touching distance of its all-time high from 1990, a milestone that analysts say will likely be topped next year, as increased US orders and companies moving manufacturing back home from China have helped make Taiwan a surprise trade-war winner.

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