2019 Off to Slow Start

Central banks throughout the world have been in a holding pattern amid a global economic slowdown and a protracted, bitter trade war between the U.S. and China. The U.S. Federal Reserve in late March announced that it will not increase rates during 2019. The Bank of England is unlikely to make any changes until the Brexit mess has been resolved, and Asian nations such as the Philippines and Indonesia in March left their rates unchanged. This cautious attitude is expected to continue.

Taiwan’s Central Bank has been no exception, leaving the bench market discount rate at 1.375%, where it has stood since June 2016. “The board judged that a policy rate hold and an accommodative monetary policy stance will help foster sound development of the economy and financial sector,” the Central Bank said in a statement.

The Central Bank also lowered Taiwan’s 2019 GDP growth forecast from the 2.33% projected in December to 2.13%. This estimate was similar to the 2.1% economic growth forecasts announced in March by both the Yuanta-Polaris Research Institute and the Australia and New Zealand Banking Group (ANZ). The Central Bank also estimates that Taiwan’s Consumer Price Index for this year will come to a stable 0.91%.

Taiwan’s technology sector has been hit by slowing global demand for electronic items. Exports, Taiwan’s economic mainstay, suffered their sharpest drop in nearly three years in February. The 8.8% fall from a year earlier to US$20.39 billion was the fourth straight monthly decline. While exports to the U.S. rose 13.5% from a year earlier, the value of shipments dropped 12% to the ASEAN nations, 10.4% shipments to China, and 15.9% to Europe. By product category, one of the biggest declines – at minus 12%  – was for machinery, due to the slowdown in China’s economy.

Export orders, a leading indicator, also posted a steep drop. Orders in February fell 10.9% from a year earlier to US$28.9 billion. Ministry of Finance officials said that while an export slowdown in the first half of the year was expected, export orders could rebound in the second half, spurred by launches of new smartphone models plus demand for products using 5G and other new technologies.

So far, the slower growth doesn’t seem to be affecting the labor market. The unemployment rate rose slightly from 3.64% in January to 3.72% in February, but the reason may have been that more people left their jobs or contracts were terminated ahead of the Lunar New Year holiday. Seasonally adjusted, the unemployment rate inched downward from January’s 3.72% to 3.71%.