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Taiwan's economy to rebound no later in Q4: Central bank governor

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Governor of the Central Bank of the Republic of China (Taiwan) Yang Chin-long speaks at a legislative hearing in Taipei Wednesday. CNA photo May 24, 2023

Taipei, May 24 (CNA) The governor of Taiwan's central bank said Wednesday he expects the country's export-oriented economy, hampered recently by weak global demand, to stage a rebound no later than the fourth quarter of this year.

Governor of the Central Bank of the Republic of China (Taiwan) Yang Chin-long (楊金龍) told a legislative hearing that if ongoing inventory adjustments abate and the global supply chain returns to normal in the third quarter, the country's GDP is expected to bounce back in the fourth quarter in a significant way.

Yang had been asked by Democratic Progressive Party (DPP) Legislator Shen Fa-hui (沈發惠) to comment on economic conditions in Taiwan after the country reported a year-over-year decline in export orders for the eighth consecutive month in April.

The central bank governor said his views about the local economy aligned with the National Development Council (NDC), Taiwan's top economic planning body.

On Tuesday, NDC head Kung Ming-hsin (龔明鑫) told an economic forum that despite recent negative indicators in Taiwan, there were some positive economic signs that indicated a potential rebound.

While export orders to Taiwan fell 18.1 percent from a year earlier in April, Kung said, orders placed by ASEAN bloc countries and Japan rose 0.1 percent and 2.3 percent, respectively, suggesting that inventories in the global supply chain may finally be returning to normal levels.

If that upward trend continues, Taiwan's economy could stage a significant rebound in the fourth quarter, Kung added.

 At the same forum, however, Taiwan Institute of Economic Research (TIER) President Chang Chien-yi (張建一) said that as weak global demand continues to weigh on Taiwan's exports, the country will have to "work very hard" to push its GDP growth to 2 percent this year.

In February, the Directorate General of Budget, Accounting and Statistics (DGBAS) downgraded its forecast of Taiwan's GDP growth to 2.12 percent for 2023 from an earlier estimate of 2.75 percent made in November 2022, citing weaker exports.

The DGBAS is scheduled to announce an update of its forecast on Friday.

In response, Yang cited an estimate made by the NDC as saying that a move by the government to give NT$6,000 (US$195) in cash from a tax surplus to eligible individuals could boost the GDP growth by 0.3-0.45 percentage points this year, and to his knowledge, the DGBAS did not include the cash handouts into its consideration when it forecast the GDP growth for this year in February.

Meanwhile, in a written report submitted to the Legislative Yuan, the central bank said it opposed the idea of the government using Taiwan's foreign exchange reserves to set up a sovereign wealth fund for investments, as it could undermine the central bank's independence.

Lawmakers have proposed an amendment to the Central Bank of the Republic of China (Taiwan) Act, which would assign a portion (10 percent) of Taiwan's forex reserves to a sovereign wealth fund for investments.

Wednesday's hearing was held to review the amendment.

According to the bill's drafters, the amendment aims to raise the country's competitiveness and enhance national security through increasing national wealth.

However, the central bank said that while it is always open to establishing a sovereign wealth fund in Taiwan, the government needs to find other funding sources instead of the country's forex reserves, as managing such a sovereign wealth fund is not the central bank's job.

The central bank added that the government should write a special law exclusively for the fund instead of the amendments to the central bank act in a bid to preserve the bank's independence.

Taiwan's forex reserves hit a record high as of the end of April, rising to US$561.12 billion, up US$837 million from a month earlier, marking the seventh consecutive month of growth.

In the hearing, Yang reiterated the central bank's opposition to the amendments and raised worries over the harm to the central bank's independence.

Yang said more discussions about the establishment of such a sovereign wealth fund are needed.

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