China is expected to see the biggest investment bubble in the world since its fixed investment surged 43 percent in the first quarter after 26 percent growth last year, Qu Hongbin (
"China is now walking a tight-rope in balancing between the over-heated investment and rising hard-landing risk by implementing mild credit tightening measures [since last June]," Qu said.
In favor of soft-landing measures, China is unlikely to allow its currency to appreciate, which will negatively impact its export-oriented economy, Qu added.
China's credit-tightening measures, however, are not sufficient since its money supply only slightly declined from last quarter's 23 percent to 20 percent this quarter -- far from its goal of 16 percent.
In spite of such credit-tightening measures, Qu, however, said China-bound Taiwanese investments will not be negatively impacted since Taiwan exports fewer capital goods to China via Hong Kong.
Qu was bullish about Taiwan's future economic performance, saying its improving employment would boost consumer spending and drive up wages.
HSBC had previously revised upward its estimates on Taiwan's economic growth rate for this year from 5 percent to 6.5 percent.
Qu also said that the nation's inflation concerns remain benign.
Commenting on the global economic outlook, Qu said that the likelihood that the US Federal Reserve will raise interest rates is slim, despite Fed Chairman Allen Greenspan's testimony on Wednesday -- when he suggested that higher interest rates are inevitable "at some point."
Qu said that, in anticipation of improved earnings performance this year, the US corporate sector is expected to stage a comeback to boost that country's economic growth.
Such economic recovery, however, is not sustainable enough to improve the US' unemployment and weakening wage problems as outsourcing to cheap-labor countries continues to dominate its economic development, he said.
Qu said the inflationary pressures are unlikely to occur under such circumstances.
"The core inflation [rate] in the US may level at 1 percent -- the lowest since 1987, and drop below 1 percent in 2005," Qu said.
Since there is no inflation, there's no urgency for the Fed to hike rates until next year, Qu said, adding that the world may completely emerge from deflationary fears next year.
The US greenback, thus, will keep weakening in the long run since the recent dollar recovery wasn't driven by fundamental flows, he said.
In light of a weakening US dollar, the euro, the yen and New Taiwan dollar will rise, he said.
According to HSBC's forecast, the euro is expected to gain and level at 1.35 against its US counterpart in the fourth quarter while the yen may fall to the ?100 level once Japan completely bottoms out of its deflationary cycle.
The yen's recovery would help the NT dollar grow to hit the NT$32 level against the US greenback, HSBC said.
RSS