Taiwan Central Bank Sees Severe Economic Challenges Next Year

A pedestrian passes the Taipei 101 building in Taipei, Taiwan.

(Bloomberg) -- Taiwan will face further severe economic challenges in 2023, central bank Governor Yang Chin-long, making it harder to predict the outlook for growth, inflation and capital outflows.

Monetary policy faces multiple challenges amid a highly uncertain environment, Yang said in a speech in Taipei on Wednesday. Rising global interest rates have had spillover effects on small, open economies like Taiwan, reducing their autonomy on policy decisions, he said.

“Taiwan has been adapting to global headwinds well and has shown resilient economic performance in the past year, compared to other economies,” said Yang. “But Taiwan faces more severe economic challenges in 2023 as various uncertainties remain.”

Yang cited economic challenges including the Russia-Ukraine War, growing US-China tensions, which have roiled the chip industry, as well as lingering supply chain disruptions from Covid-19 and high inflation.

Future monetary policy action will depend on what the economic indicators show, the governor said.

“Taiwan will make a careful assessment based on economic data to decide whether monetary policy will be further tightened, slowed down, or halted,” he said.

The central bank raised its benchmark interest rate three times this year to 1.625%, although it lifted it by only 12.5 basis points the last two times to avoid further damage to its economy.

A slowdown in China's economy and waning global demand for electronic goods and chips are weighing on Taiwan's economy. Exports contracted in September for the first time since 2020.

Yang said Taiwan's trade and economic performances are still resilient amid rising energy prices globally this year, adding that growth and inflation will slow next year.

The central bank has foreign-exchange repurchase agreements with international organizations and major global financial institutions for US dollar funding, which can meet Taiwan's demand for liquidity when in need, he said.

More stories like this are available on bloomberg.com