Central bank warns of uncertainties faced by Taiwan economy

Taipei, June 17 (CNA) The Central Bank of the Republic of China (Taiwan) has warned Taiwan's economy will face several major uncertainties this year, including the upcoming presidential election in the United States, although the bank also raised its forecast for Taiwan's gross domestic product (GDP) growth for 2024.

According to a report released by the central bank after a quarterly policymaking meeting on June 13, the bank said the U.S. presidential vote, when incumbent Joe Biden will run against his predecessor Donald Trump at the end of this year, is expected to send ripples through global politics.

In turn, the world's largest economy will be impacted accordingly, which could create massive uncertainties for export-oriented Taiwan, the central bank said.

In addition, the central bank said, geopolitical unease escalated by the Russia-Ukraine war, military conflict between Israel and the Palestinian Islamist group Hamas and the crisis in the Red Sea are expected to create headwinds for Taiwan's economy.

At the policymaking meeting, the central bank upgraded its forecast for Taiwan's GDP growth to 3.77 percent for 2024 from an estimate of 3.22 percent in March, citing improving export performance.

In addition to the central bank, several economic institutions have also raised their forecasts for Taiwan's GDP growth to at least 3.5 percent for 2024.

However, citing non-economic factors that could impact the global market, the central bank said these uncertainties could boost inflation at home and abroad.

Trade frictions

In addition to non-economic factors, trade tensions between the U.S. and China have been escalating with Washington on May 14 imposed 25-100 percent punitive tariffs on Chinese goods, including steel and aluminum products, semiconductors, machinery and medical items, worth about US$18 billion, citing China's unfair trade practices.

Furthermore, the central bank said, trade friction between the European Union and China and between the G7 countries and China have also been on the rise.

The central bank said more and more clients of Taiwanese companies have asked their suppliers to relocate their production overseas in a bid to ease impact resulting from geopolitical tensions, which is expected to reduce investment in Taiwan and slow down Taiwan's export momentum.

World's major central banks 

According to the central bank, how the major central banks in the world adjust their monetary policies is expected to produce uncertainties in the global economy.

Last week, the U.S. Federal Reserve left its key interest rates unchanged and global markets are watching closely when the Fed will start a rate cut cycle at a time when inflation shows signs of moderating.

At the latest quarterly policymaking meeting, the local central bank also maintained its monetary policy and cut its forecast for Taiwan's consumer price index growth from 2.16 percent to 2.12 percent, above the 2 percent alert set by the bank.

New credit controls in Taiwan

After the decision, the local discount rate remains at 2 percent which is still the highest in 15 years, with collateral at 2.375 percent, and the rate on accommodations without collateral at 4.250 percent.

However, the central bank also raised the Taiwan dollar required deposit reserve ratio, which is the proportion of deposits regulators require banks hold in reserve and not loan, by 25 basis points, effective from July 1, to drain liquidity from the local property market.

In addition, the central bank came up with a sixth round of selective credit controls on the home market, in a bid to rein in soaring home prices which have sparked an outcry among young home buyers.