The nation’s economy expanded 4.88 percent in the fourth quarter of last year, bringing the year’s GDP growth to 6.28 percent, the Directorate-General of Budget, Accounting and Statistics reported late last month. The growth was the fastest annual increase since 2011, indicating that the economy maintained its resilience amid the COVID-19 pandemic and swiftly rebounded from the nation’s worst local outbreak in May. The biggest challenge this year is meeting last year’s high comparison base.
The nation’s growth momentum surprisingly accelerated after GDP expanded 3.11 percent in 2020, due to robust exports and domestic investments. It was a commendable performance for Taiwan in comparison with other “Asian Tigers.” South Korea’s economy in 2020 contracted for the first time in 22 years amid the pandemic, shrinking 1 percent from a year earlier, but it last year expanded 4 percent, its fastest pace in 11 years, on the back of soaring exports and increased construction activity.
Singapore’s economy grew 7.2 percent last year, after shrinking 5.4 percent in 2020, while Hong Kong’s GDP expanded 6.4 percent, reversing two previous years of annual contraction as its economy was also battered by the pandemic. While their growth benefited from improved export performance and private consumption, the rise was boosted by a low comparison base.
Taiwan’s exports, stock prices, currency and housing prices reached their highest levels in three years. Even though sustained global demand for semiconductors, and large domestic investments in machinery and industrial materials would continue to underpin the nation’s manufacturing and exports outlook this year, last year’s high comparison base would likely limit potential growth.
The Omicron variant of SARS-CoV-2 and the government’s cautious approach to containing local infections might also renew pressure on economic activity and hamper a greater rebound in demand. The Omicron variant is creating obstacles worldwide, with the global economy in a weaker position than previously expected, according to the IMF’s latest World Economic Outlook report released last month. As Taiwan is an export-reliant economy, the risk of shrinking global demand and other developments in the external environment warrant the nation’s attention.
While Taiwan’s headline consumer price index averaged 1.96 percent last year and the core inflation measure — which excludes fruits, vegetables and energy — was relatively subdued at 1.33 percent, the gauges were already at their highest since 2009. Other uncertainties, such as geopolitical tensions, price increases in some major economies and persistent supply chain bottlenecks amid the evolving pandemic, could lead to major central banks tightening monetary policy — and Taiwan is no exception.
The minutes of the central bank’s December policy meeting showed that discussions had started to focus on whether the bank should raise interest rates at its next quarterly board meeting — which is scheduled for March 17, shortly after the US Federal Open Market Committee’s policy meeting on March 15 and 16 — should inflationary pressure continue to intensify, although board members worried about greater capital inflows into the property market if it starts raising interest rates too soon.
Taiwan’s manufacturing sector is to remain one of the key pillars of the economy this year on the back of robust global demand. It is too early to evaluate the potential effects of the Omicron variant on the nation’s exports and economic outlook, but a high comparison base last year and the ongoing supply bottlenecks might contribute to a moderate growth this year.
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