Taiwan Sounds Currency Warning as Chip Demand Fuels Exports

Taiwan more than doubled its forecast for export growth this year, but sounded a warning that the global scramble for computer chips is going to add further upward pressure on the local dollar. Stocks and the currency gained.

Exports will likely rise 9.58% this year, compared with a previous estimate of 4.59%, the statistics bureau said Saturday. Gross domestic product may expand 4.64%, more than previously expected and up from a revised 3.11% in 2020, when it was one of the few significant economies to register growth.

“Our trade surplus was $58.8 billion last year,” said statistics chief Chu Tzer-ming. “We expect it to be $63.9 billion this year. This might lead to pressure on the Taiwan dollar to appreciate. Everyone should watch out for this.”

Overseas demand for chips used in smartphones, artificial intelligence and high-performance computing has helped fuel an appreciation of more than 7% in the Taiwan dollar versus the greenback over the past 12 months, even as the central bank worked to slow gains.

The Taiwan dollar closed little changed after strengthening as much as 1.5% Monday, largely in line with intraday gains over the past few weeks before the central bank steps in to “smooth” the gains in late trading. The benchmark Taiwan Stock Exchange index rose 0.4%

While Taiwan’s projected growth for this year lags the global average of 5.4%, based on a Bloomberg survey of economists, it’s coming off a higher base. The island’s successful management of the pandemic and avoidance of lockdowns has also supported domestic consumption.

Taiwan Sounds Currency Warning as Chip Demand Fuels Exports

Despite the currency’s gains last year, the U.S. Treasury added Taiwan to a watch list of potential currency manipulators in December, citing the island’s growing current account surplus, and urged the central bank to allow further gains. That’s leaving policy makers in a dilemma: let the Taiwan dollar gain faster, potentially hurting exporters, or risk tensions with the U.S., a key ally.

“The Taiwan dollar has solid fundamental reasons to appreciate further with Taiwan’s stellar export performance,” said Gary Ng, an economist at Natixis in Hong Kong. “In addition, the central bank will try to avoid being designated a currency manipulator, and it is indeed difficult to stop the inflows driven by better economic prospects and a weaker dollar.”

The government pointed to increased demand for Taiwan’s semiconductors as a key reason it upgraded the 2021 forecasts. Given the leading position of the island’s main chip manufacturers, strong external demand will boost exports, Tsai Yu-tai, director of the statistics department of the Directorate General of Budget Accounting and Statistics, said at a briefing following the release of Saturday’s data.

“We upgraded our export outlook after taking January export data into consideration, plus the fact that Taiwanese businesses with facilities in China are investing more at home, and the changes in the global supply and demand,” Tsai said. “We expect this year’s export growth to be the strongest since 2017.”

Latest 2021 FY Economic EstimatesPrevious Estimates
GDP Growth4.64%3.83%
CPI1.33%1.16%
Export Growth9.58%4.59%
Import Growth9.77%5.97%
Trade Balance$63.9 billion$57.8 billion

At the same time, the export data also underscore Taiwan’s dominance in the global chip supply chain.

U.S. President Joe Biden’s top economic adviser, Brian Deese, last week sought the Taiwan government’s help in resolving the chip shortage that’s hindering U.S. automotive manufacturing. His appeal followed earlier pleas from Japanese and European officials for Taiwan’s help in ensuring supply.

The world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Co., plans to increase capital expenditure this year to as much as $28 billion to help address the shortage. Shares in the chip giant have surged 23% this year, on top of a 60% jump in 2020, making it the world’s 10th-largest company.

Taiwan Sounds Currency Warning as Chip Demand Fuels Exports

Taiwan’s manufacturing sector has been bolstered by the government’s largely successful handling of the Covid-19 pandemic. Taiwan has consistently ranked near the top of Bloomberg’s Covid Resilience Ranking, having had just nine deaths and fewer than 1,000 cases since the beginning of the outbreak.

That allowed it to avoid the strict lockdowns which brought many other economies to a halt. With a few exceptions, Taiwanese businesses, offices and schools stayed open throughout the year, and there was a boom in domestic travel as people opted to vacation at home rather than head overseas.

©2021 Bloomberg L.P.

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