Taiwan cuts 2023 growth outlook on trade, inflation pressures

Taiwan cut its forecast for growth this year as weak exports continue to drag on the economy, while inflation is likely to pick up more than expected, potentially injecting uncertainty into the central bank’s monetary policy strategy. 

Gross domestic product is likely to grow 2.12% in 2023 from a year prior, Taiwan’s Directorate General of Budget, Accounting and Statistics said Wednesday. That compares to the department’s most recent estimate of 2.75%, given in November.

Officials also raised their annual inflation forecast to 2.16%. The department’s projection for exports worsened to a 5.84% contraction.

It also revised up its fourth-quarter figure for GDP to a 0.41% contraction, compared to advanced estimates of a 0.86% decline.

The Taiwanese government has long acknowledged multiple headwinds to growth this year, including a post-pandemic drop-off in global demand for chips and other exports that have bolstered economic growth in recent years. 

The GDP contraction in the final three months of last year was the worst since the global financial crisis, at the time spurring officials to warn of “relatively low” growth at the start of 2023.

Exports remain Taiwan’s major concern this year, with the contribution that trade provides to GDP likely “challenging” this year, said Citigroup Inc. analyst Adrienne Lui in a note earlier this month. 

Still, she said China’s reopening from Covid Zero could give a lift to non-tech exports, improving the outlook. China is Taiwan’s biggest trading partner, and last year’s mobility restrictions and border closures weighed heavily on Taiwan’s trade. Since the world’s second-largest economy abandoned that policy, many economists have upgraded their growth forecasts.

Price Pressure

Consumer inflation, meanwhile, unexpectedly spiked last month, creating speculation about whether price pressures would push Taiwan’s central bank to raise interest rates again in March — a possibility that late last year was seen among economists as unlikely. 

January’s consumer price index jump was attributed to increased spending over the Lunar New Year holiday and an uptick in vegetable prices due to cold weather. But officials including central bank board member Chang Chien-yi have said that elevated costs will be a challenge this year. He told Bloomberg News earlier this month that the monetary authority still has room to hike Taiwan’s benchmark interest rate.