This note is a bit different to our usual offering. It is still relevant to investors, but it is more of a guide to the economic issues that I would be thinking about if I were a voter in Taiwan. That includes one observation, and five questions that politicians should be answering.
We would have thought Taiwan would now be at the stage where exports were more clearly taking over from the domestic sector as a driver of growth. Instead, recent industrial data have been sluggish, while domestic momentum is holding up. Unemployment continues to fall.
The CBC kept rates on hold at its quarterly meeting today, and doesn't look in a rush to make a move either up or down any time soon. It expects modestly stronger GDP growth in 2024. It forecasts inflation to fall, but the expected core rate of 1.8% would still be high relative to Taiwan's history.
Wage growth has slowed, but the three-year trend remains the highest in 20 years. The same is true of core CPI, and both make sense with unemployment being the lowest since the early 2000s. The labour market isn't yet pointing to a significant deceleration in inflation.
Exports look to be picking up, and if that continues, there isn't a convincing case for rate cuts. There are signs that the recovery is stronger in Taiwan, which makes sense given structural competitiveness. With ultra-robust external finances too, that makes prospects for the TWD look better.
Sequential inflation dropped back to zero in November, but average core over the last three months remains elevated. With the domestic economy holding up, and exports starting to rebound, there isn't a strong case for rate cuts. That will matter for the TWD if exports really do rebound from here.
Desynchronisation is still the theme, but the components are changing. Momentum in consumption and services, which drove growth in the last 12M, is now fading, but the export recession is easing. The direction for CPI and the CBC will depend on how far exports now recover.
The tone of the releases this week was a little softer, but neither price nor wage growth look especially weak, especially versus the doveish stance of the CBC in September. That gap probably won't matter if exports don't get going, but there are signs that the tech cycle is now starting to improve.
A chart pack summarising Taiwan macro