Taiwan’s economy under pressure as trade woes continue
Weak global semiconductor demand, limited benefits from China's re-opening, and further rate hikes mean it'll be a tough year ahead for Taiwan
Taiwan: At a glance
Taiwan's economy has been showing signs of weakness since September 2022, when global semiconductor demand slumped. That was mostly due to high inflation and therefore weaker demand for electronic goods in the US and Europe. Demand from China, which is also a big consumer market, also suffered due to Covid-19 measures. Average growth in the first three quarters averaged above 3% year-on-year. This is low compared to 7% for the same period in the previous year. Inflation picked up but didn’t exceed 3.6% in 2022. The central bank still raised the discount rate to 1.75% from 1.125%. The Taiwan dollar weakened against the US dollar by around 10% in 2022.
GDP and inflation outlooks
3 calls for 2023
Weak semiconductor demand leading to slower growth
Taiwan's economy will continue to come under pressure from shrinking sales of semiconductors as external demand wanes. Semiconductors contribute around 40% of Taiwan's exports. As high inflation continues to lower purchasing power in the US and Europe, and with Mainland China's economy yet to recover fully, the challenging time for semiconductors and therefore trade for Taiwan could continue until at least the first half of 2023. If external demand improves in the second half of the year, Taiwan’s economic growth should accelerate.
Mainland China's reopening of borders may not benefit Taiwan
Mainland China's elimination of most Covid restrictions and the reopening of borders may not benefit Taiwan, at least in the first half of 2023. Taiwan has banned Mainland Chinese tourists since the Covid outbreak, and only allows Chinese citizens to visit for business or family reasons. This means retail sales in Taiwan may not recover to pre-Covid levels in 2023.
Monetary policy will weigh on the economy
Taiwan's central bank may continue to shadow the US Fed's rate hike path, at least in the first quarter of 2023. That means the monetary policy will exacerbate the weak growth of the economy. This is a risky policy, which could bring further financial pressure to companies and households that will face higher interest costs. On the fiscal side, the government may need to extend preferential policies to small and medium-sized enterprises and it is likely to spend more on military expenses. The New Taiwan dollar (TWD) could be volatile when the central bank changes its interest rate path from hikes to cuts. Taking more time to move from hikes to easing than the Fed in the US could help support the TWD against the US dollar from the second quarter to the fourth quarter of 2023.
Taiwan forecast summary table
Download
Download article
9 January 2023
Asia Outlook 2023: Darkest before the dawn This bundle contains 11 articles"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).