Taiwan’s third-quarter economic growth will slow following five consecutive quarters of growth and growth momentum may weaken further in the fourth quarter before rebounding, Citigroup said in its latest report on regional economies.
Slowing export growth because of weak tech product demand and a temporary bottleneck in petrochemical supply, as well as pressure from NT dollar appreciation, would lead the central bank to temporarily halt its interest rate hike cycle, Citi’s Asia Macro and Strategy Outlook, released on Friday, said.
The government’s statistics bureau is scheduled to release its own third-quarter economic assessment and fourth-quarter forecast later this month, and the central bank is slated to review monetary policy next month.
Asian central banks, including in Taiwan, are facing challenges to maintain stability in national currencies and capital mobility as the US Federal Reserve may announce another round of large-scale asset purchases this week.
Among Asian economies, Taiwan, Malaysia and Thailand are more likely to focus on foreign exchange rate stability because their economies are comparatively sensitive to export performance, Citigroup said in the report.
With relatively mild inflationary risks compared with regional peers, Taiwan, Malaysia and the Philippines are the least likely to raise interest rates in the near term, while Taiwan, Thailand, South Korea and Indonesia look most likely to tighten capital inflows, the report said.
Taiwan’s “housing markets are cooling, but not enough to stop the government from further tightening measures,” Citigroup economist Cheng Cheng-mount (鄭貞茂) said.
As capital control measures are still under discussion, Cheng said the central bank might continue its moral suasion stance to reduce volatility in the foreign exchange market instead of any stricter rules.
Based on Citigroup’s assessment, third-quarter GDP growth would decline 0.6 percent from the previous quarter, but grow 8.6 percent from a year ago, mainly because of a 0.7 percent decline in exports from the previous quarter, the first negative quarterly growth rate in six quarters. Fourth-quarter GDP growth is expected to decline 0.9 percent from the third quarter.
Citigroup said it was bullish on the near-term NT dollar upside trend and revised its year-end target to NT$30.6 from NT$31.5 to the US dollar.