Taiwan’s central bank (CB) has room for further interest rate cuts, governor Yang Chin-long said on Thursday, but he cautioned economic growth could be less than 1% this year due to the impact of the coronavirus pandemic.

In March, the central bank cut interest rates for the first time in more than four years to a low of 1.125%, and reduced its growth forecast for the economy amid growing fears the pandemic will trigger a deep global recession.

Speaking in parliament, Yang said there was “basically” room for more rate cuts, but that they would also see what other central banks around the world were doing.

“The central bank will observe the rate cutting situation of other central banks internationally, and how our anti-epidemic situation is,” he said.

The central bank will hold its next quarterly meeting in mid-June.

Taiwan’s economic growth slowed to its weakest in nearly four years in the first quarter, as the coronavirus crimped domestic consumption though still-strong demand for electronics helped soften the impact on the trade-reliant economy.

“Looking at things now, I don’t dare to say whether there will be a problem to keep this year’s GDP (growth) at 1%,” Yang said.

The government has warned of a slowdown in export orders that will especially hurt its tech manufacturers in the coming months, and is rolling out an economic stimulus package expected to be eventually worth T$1.05 trillion ($35.13 billion).

Taiwan’s gross domestic product (GDP) expanded by 1.54% in the January-March period from a year earlier, preliminary data from the statistics agency showed, less than half the pace of the fourth quarter’s 3.31%.

While Taiwan has not gone into total lockdown to contain the spread of the virus due to relatively successful measures that prevented a rapid spread of the disease, the government has repeatedly warned of uncertainty for the economy.

Last month, it downgraded its growth forecast for this year to between 1.3% and 1.8%, from 2.37% in February.

Some analysts, however, say Taiwan’s success at containing the pandemic will not help avert a recession in 2020. Domestic consumption and the job market have been hit hard while exports, which contribute to more than 60% of its GDP, have also dropped from a collapse in global demand.

Taiwan has reported 440 coronavirus infections and seven deaths, far lower than most of its neighbours, and the government is slowly lifting some restrictions it had put in place, such as bans on fans attending baseball matches.

Meanwhile, in a race to position itself in the latest trade battle between the United States and China, Taiwan Semiconductor Manufacturing Co made it just under the wire.

The world’s biggest contract chipmaker unveiled plans for a $12 billion plant in Arizona on Friday just hours before Washington outlined a proposal to amend tech export rules that could restrict TSMC’s sales to China’s Huawei.

A US Commerce Department official said TSMC’s decision to locate the plant in the United States generated “good will” at the department, the drafter of the law that would require TSMC and others to get US licences to sell chips to Huawei.

The move shows the delicate balancing act by TSMC to stay on side with Washington, which has stepped up criticism of Chinese trade practices and Beijing’s handling of the novel coronavirus, while protecting its China business, analysts said.

“TSMC has to figure out how to best leverage and benefit from the U.S.-China tensions,” said Liu Pei-chen, tech analyst at government-backed think tank Taiwan Institute of Economic Research.

It could not escape them so its room for manoeuvre consisted of negotiating the best terms for the US factory it could, she said. Analysts estimate TSMC generates around 60% of its revenue from the United States and some 20% from China.

Liu said TSMC would enjoy the first-mover advantage as US President Donald Trump seeks to wrestle global tech supply chains back from China ahead of Nov. 3 presidential election.

US government officials were not immediately available to comment on whether the investment would make it more likely that TSMC would get a licence to supply Huawei.

TSMC said it was working with outside counsels to interpret the rules in good time and maintains long-term collaborations with equipment partners around the world.

Huawei did not immediately reply to a request for comment. The Trump administration on Friday moved to block shipments of semiconductors to Huawei from global chipmakers, in an action that could ramp up tensions with China.

Reuters