As US-China trade tensions worsen and global economic growth slows in the second half of this year, Taiwan’s export-reliant economy is set to take a hit.
While exports in the first eight months of the year increased 8.9 percent from a year earlier, they fell short of the 10 percent year-on-year increase in the first seven months, Ministry of Finance data showed.
Imports also suffered. While imports in the first eight months increased 11.7 percent from a year earlier, they fell short of the 12.2 percent registered in the first seven months, the data showed.
The demand that Taiwanese businesses have for imported raw materials and equipment has weakened due to reduced investment — an unwelcome sign for growth momentum.
As a result, the effects of the trade dispute will be reflected more in next year’s economic growth than in this year’s. In August, the Directorate-General of Budget, Accounting and Statistics predicted GDP growth of 2.69 percent this year and 2.55 percent next year, while the central bank on Thursday forecast economic expansion of 2.73 percent this year and 2.48 percent next year.
Global uncertainties are challenging Taiwan’s economy, likely requiring the central bank to maintain an accommodative stance as the government implements an expansionary fiscal policy to boost business investment and revive consumer sentiment.
This means that the low interest rate environment could remain for an extended period, although often criticized for harming domestic banking revenues and intensifying buyer interest in the local property market.
In the past few months, the central banks of some Asian countries — such as India, Indonesia and the Philippines — have tightened their monetary policies in the face of booming economies, surging inflation and pressured currencies.
Meanwhile, other central banks in the region — such as in China, South Korea, Japan and New Zealand — have elected to keep interest rates low so that they can take drastic action if the global situation worsens and negatively affects their domestic economies.
Similarly, the hands of Taiwan’s central bank are tied. At its quarterly board meeting on Thursday, the monetary policymaker decided to leave its policy rates unchanged for the ninth consecutive quarter due to concerns about the US-China trade war and a benign inflation outlook.
Investors are asking whether the central bank will stay put for at least one or two more quarters, or if it will begin to take a more hawkish stance.
Next year could experience stagflation — the coexistence of high inflation and low GDP growth — if the central bank continues to maintain a policy of low interest rates, the research team at Cathay Financial Holding said on Friday.
The future might hold rising inflation, as Cathay Financial Holding predicted, but what deserves closer attention is how a sustained environment of low interest rates interacts with rising interest rates in the US, limits the profitability of Taiwanese banks compared with regional peers, and shrinks the interest income of people who live off their savings.
The economy faces tremendous internal and external pressures and the central bank must manage them prudently. While global capital flows are faster and currencies are experiencing greater fluctuations, cryptocurrencies and blockchain technology are also vying for the attention of the central bank, which has long been the guardian of official money.
The current economic scene dictates that the central bank maintain its dovish policy to sustain economic growth and foster price and financial stability.
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