Taiwan’s Central Bank Raises Growth Outlook Amid Trade Boost

(Bloomberg) -- Taiwan’s central bank joined the growing ranks of economic forecasters raising their growth outlooks for the export-dependent island economy as hopes grow the U.S. and China could bring an end to the trade war.

• The central bank raised its 2019 growth forecast to 2.6% from the 2.4% it predicted in September. It also upped its prediction for next year to 2.57% from 2.34%.
• Policymakers decided to hold the benchmark interest rate at 1.375%, where it has been since June 2016.
• All 30 economists surveyed by Bloomberg predicted no change.
• Governor Yang Chin-long says the central bank will enter the currency market if there are “huge” capital flows in a short period of time.
• If the U.S. doesn’t change its criteria, Taiwan could easily return to the Treasury’s currency manipulation watch list, but Taiwan is still in communication with American officials: Yang

Key Insights

• “There’s a chance the situation will change from the second quarter next year,” said Jih Sun Securities economist Jordan Su following Thursday’s announcement. “If the Taiwan dollar appreciates past NT$30 to the U.S. dollar, the central bank may cut rates to ease the TWD’s gain. But on the other hand, if the economy performs better than expected in the second half of the year and the full-year growth forecast reaches 2.8% or more, the central bank could raise rates from the third quarter onward.”
• “The Taiwanese economy is showing exceptional resilience despite the U.S.-China trade tensions and weak growth in the region, thanks to trade redirection and solid investment related to semiconductors and reshoring,” Societe Generale economist Michelle Lam said ahead of Thursday’s rate decision. “We expect these drivers to continue to take hold in 2020.”
• The reshoring of investments by Taiwanese companies amid the U.S.-China trade war and burgeoning demand for 5G telecommunications equipment are improving the outlook for the economy. Economists raised their growth forecasts to 2.5% for 2019 and to 2.3% for 2020 in the latest Bloomberg economic survey.
• Taiwan’s monetary authority is not expected to alter borrowing costs until 2021 at the earliest: Bloomberg survey.

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• Taiwan’s exports rose 3.3% in November, the most in more than a year as shipments to China recovered, helped by companies gearing up for the roll-out of 5G telecommunications next year.
• The Taiex index is within touching distance of its all-time high from 1990, a milestone that analysts say will likely be topped next year, as increased U.S. orders and companies moving manufacturing back home from China have helped make Taiwan a surprise trade-war winner.

--With assistance from Miaojung Lin.

To contact the reporters on this story: Chinmei Sung in Taipei at csung4@bloomberg.net;Samson Ellis in Taipei at sellis29@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Sharon Chen

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