Taiwan’s economic growth rate is expected to drop below 3 percent to 2.91 percent in 2023 amid moderate inflation worldwide, which would negatively affect Taiwan’s exports and investments, the Taiwan Institute of Economic Research (TIER) said on Friday.
Taiwan’s economic growth this year is forecast to be 3.45 percent, while the consumer price index (CPI) growth next year is projected to drop to 1.95 percent, TIER told the audience at a seminar in Taipei about the economic outlook for 2023.
The CPI growth in October was 2.72 percent, according to the Directorate-General of Budget, Accounting and Statistics.
Major economies have raised interest rates this year in an attempt to curb inflation, which has negatively impacted the production output of the manufacturing industry, TIER said.
This, along with the ongoing war in Ukraine and the resumption of the U.S.-China tech war, has sparked concerns about the global economic outlook and caused major research institutes worldwide to forecast that economies would see slower growth next year, it said.
Slower global economic growth would reduce Taiwan’s exports and investments, it said.
Domestic concumption
Meanwhile, while external demand is expected to shrink, Taiwan’s economic growth next year would likely be sustained by domestic consumption thanks to significantly relaxed COVID-19 prevention rules, which would give local sectors a boost, it said.
Although Taiwan’s economy is likely to retain its momentum next year, people should look out for three main variables: turbulent international politics, tightening of money policy and climate change, TIER Macroeconomic Forecasting Center Director Sun Ming-te (孫明德) said.
There have been fears of a new Asian financial crisis as tight monetary policies adopted by major central banks worldwide have increased the volatility in the financial markets and severely weakened non-U.S. currencies, according to TIER.
However, Sun said the likelihood of an Asian financial crisis occurring is very low given that most Asian countries now have less foreign debt, more foreign reserves, and a higher current account to GDP ratio.
In other words, Asian countries are generally “borrowing less, earning more, and saving more,” which lowers the possibility of an economic collapse, he said.
U.S. rate decisions
Asked whether the U.S. Federal Reserve could cap its next interest rate hike in December at 0.25 percentage points given that the U.S. CPI in October was lower than expected and could signal slowing inflation, TIER President Chang Chien-yi (張建一) was not so optimistic.
He said it was not likely for inflation to fall within a short period of time, pointing to inflation in the U.S. in the 1980s, which rose above 14 percent and ushered in a prolonged period during which the interest rate remained at a double-digit level.
As such, the Fed would likely continue the current pace of rate hike to compensate for its prior underestimation of inflation, said Chang.
Meanwhile, people should observe whether the nominal interest rate in the U.S. will surpass the inflation rate, he added.
Source: Focus Taiwan News Channel