By Jeanny Kao and Meg Shen
TAIPEI (Reuters) -Taiwan's trade-dependent economy is likely to grow more slowly this year than previously forecast, hit by a slump in exports on weakening external demand due to global inflation, rate rises and impact of the war in Ukraine, the government said.
Taiwan, home to major tech companies including the world's largest contract chip maker TSMC, has seen exports contract for five months in a row as consumers tighten their purse strings around the world, while China, Taiwan's largest export market, has yet to bounce back from COVID-19-related turmoil.
Taiwan's gross domestic product (GDP) for 2023 is now expected to be 2.12% higher than last year, the Directorate General of Budget, Accounting and Statistics said on Wednesday, revising down the 2.75% forecast it issued in November.
That would mark a slowdown from the 2.45% logged for 2022, which was itself far slower than 2021's 6.53% expansion.
"Under the influence of monetary tightening by various countries to combat inflation and the stalemate in the Russia-Ukraine war, terminal consumer demand has weakened, product prices have fallen, industrial supply chain inventories have been adjusted, and global economic growth has slowed," the statistics agency said.
It now sees 2023 exports down 5.84% on last year, compared with a 0.22% contraction predicted earlier.
Kevin Wang, an economist at Taishin Securities Investment Advisory Co, said the economy could even struggle to grow faster than 2% this year, though exports were likely to pick up in the second half.
Compounding the potential pain ahead for Taiwan, the office also revised up its 2023 inflation outlook, meaning the central bank could continue to hike interest rates. The office sees this year's consumer price index 2.16% higher than last year, compared with a previously forecast rise of 1.86%.
"If CPI in February remains stuck at about 3%, there is a higher chance the central bank will raise interest rates in the first quarter," Wang said.
The central bank holds its next scheduled rate setting meeting on March 23.
However, Taiwan's economy in the last three months of 2022 did not perform as poorly as initially reported.
In the fourth quarter, GDP shrank by a revised 0.41% on a year earlier, the agency said, revising up a preliminary reading of a 0.86% contraction.