Taiwan cuts GDP outlook on weak global demand, keeps rates unchanged

People leaving Taiwan’s central bank in Taipei, Taiwan, Dec 14, 2022. REUTERS/Ann Wang

TAIPEI  -Taiwan’s central bank cut its 2023 economic growth forecast for the export-reliant economy due to sluggish global demand though predicted better growth next year, while it kept rates on hold on Thursday as inflationary pressures cool.

Taiwan is a major producer of semiconductors used in everything from cars to smartphones, but with global consumer demand hit by high inflation, rising interest rates and the impact of the Ukraine war on global demand, its economy slipped into recession in the first quarter.

However, the island’s economy returned to growth in the second quarter, albeit at just 1.36 percent year-on-year.

The central bank, in a unanimous decision, left the rate at 1.875 percent, where it has stood since March, extending a pause in its current round of tightening which began in March of last year. It raised rates five times by a total of 75 basis points to rein in price pressures.

All economists in a Reuters poll had predicted the central bank would stand pat.

The move follows the U.S. Federal Reserve’s decision to keep interest rates steady on Wednesday, though it signalled policy would remain slightly restrictive for some time.

Taiwan’s central bank again cut its 2023 estimate for economic growth to 1.46 percent from a forecast of 1.72 percent in June, but predicted a rebound in 2024 with growth of 3.08 percent .

It also trimmed its headline consumer price index (CPI) forecast for this year to 2.22 percent from a previous prediction of 2.24 percent , but said it saw it falling to below 2 percent next year.

Kevin Wang, an economist at Taishin Securities Investment Advisory in Taipei, said with economic growth remaining moderate into next year, the central bank will continue to stand its ground on rates.

“Taiwan will not be able to cut rates until the U.S. Federal Reserve starts doing so, but that time point should not be until the second half of next year,” he said.