Taiwan Economics in Brief – March 2022

By Dexter Murray and Aimee Wu

Balancing GDP Growth with Rising Costs in 2022

After last year’s GDP growth of over 6%, the Directorate General of Budgeting, Accounting and Statistics (DGBAS) forecast last month that Taiwan’s economy will grow 4.42% in 2022, an upward revision from the 4.15% it projected in November. While demand for Taiwanese exports remains high, slowdowns in Taiwan’s two largest export markets, China and the U.S., mean that this year’s growth will rely more heavily on increasing domestic demand. Whether Taiwan will achieve GDP growth of over 4% in 2022 depends on how well its service and hospitality sectors rebound after the COVID-19 pandemic, says Chang Chuang-chang, president of the Chung-Hua Institution for Economic Research.

Taiwan’s foreign exchange reserves reached a record high of US$549 billion last month. The US$466 million rise from the previous month marks six consecutive months of reserve growth and can be attributed to several factors, including robust demand for Taiwanese goods, increased returns from reserve portfolio management, and the fluctuation of exchange rates of other currencies against the U.S. dollar. Taiwan maintains the world’s fifth largest foreign exchange reserves, just behind India.

On the inflation front, Taiwan’s consumer price index (CPI) rose by 2.84% in January, marking the sixth consecutive month that CPI has exceeded the Central Bank’s 2% target. It is the longest stretch of monthly increases since the 2008 financial crisis. Taiwan’s core CPI, a less volatile measure of inflation, increased 2.4% in January, the highest increase since 2009. In an effort to stabilize prices, the government has suspended tariffs for staple goods and is expected to follow the U.S. Federal Reserve’s lead by raising interest rates as early as this March.

The average real regular wages of employees in Taiwan decreased last year for the first time since 2017. According to DGBAS, the slight drop can be partially explained by rising consumer prices. Although allowing the New Taiwan dollar (NTD) to appreciate could help mitigate inflation by increasing purchasing power, the Central Bank has taken steps to avoid spikes in the NTD’s valuation this past month as it could negatively affect Taiwan’s exports and economic growth.