Taiwan Economics in Brief – May 2021

By Austin Babb and Jason Wu

Exports Climb as FOREX Reserves Fall

The International Monetary Fund (IMF) in April raised its forecast of Taiwan’s 2021 GDP growth to 4.7%, much higher than the 3.2% figure it provided last October. The organization’s biannual World Economic Outlook report cited a “stronger than anticipated rebound” of the global economy as the reason for its upward adjustment. The new projection surpasses both the 4.64% forecast by Taiwan’s Directorate General of Budgeting, Accounting and Statistics (DBGAS) and the 4.53% predicted by Taiwan’s Central Bank. According to the IMF report, Taiwan’s predicted growth ranks third among the “Four Asian Tigers,” after that of Hong Kong and Singapore. 

The Taiwan Institute of Economic Research (TIER) reports that Taiwan’s March exports rose steadily to US$35 billion, 27.1% higher than the same month a year earlier, driven by global pandemic recovery and revitalized demand. Machinery exports were especially strong, standing at US$2.22 billion, a 30.7% increase from March 2020, according to the Taiwan Association of Machinery Industry (TAMI). Electronic equipment exports soared 135.2% year-on-year, according to TAMI figures.

After 21 months of consecutive growth, Taiwan’s foreign exchange reserves posted a decline, falling to US$539 million due to capital outflows triggered by a rise in the yield of 10-year U.S. Treasury notes. The New Taiwan dollar traded 0.79% weaker against the strengthening U.S. dollar, dropping to NT$28.531 in March. Defying speculation, the U.S. stopped short of labeling Taiwan a currency manipulator, citing “insufficient evidence.” However, in the latest U.S. Treasury Department foreign exchange report, the Treasury noted that it will begin “enhanced engagement” with Taiwan to address the issue.

The Central Bank opted in March to keep key interest rates unchanged due to the government’s continued expansionary fiscal operations. It was the fourth consecutive quarter the bank has maintained its monetary policy, and the decision was based on the lack of inflationary pressure in Taiwan.