The economy is likely to grow 3 percent next year, from an estimated 1.65 percent this year, as the nation emerges from the global slowdown amid potential headwinds, Australia and New Zealand Banking Group Ltd (ANZ) said in a report yesterday.
“We hold a cautiously optimistic view on Taiwan’s economy with its GDP forecast to grow by 3 percent next year,” ANZ senior economist on Greater China Raymond Yeung (楊宇霆) said in the report.
Growth momentum depends heavily on China’s economic performance as the economic correlation between the two has risen from 20 percent in 2003 to 77 percent this year and China has increasingly evolved from a base for global manufacturers to a massive consumer market, Yeung said.
ANZ expects China to see a strong recovery next year, with GDP to reach 8.1 percent, from 7.8 percent this year, the report showed.
However, downside risks remain as competition between the world’s technology giants pans out, the report said.
Taiwan’s electronics sector has proved resilient this year amid a major downturn in demand for information and communications technology products, Yeung said.
“The intensified competition among major brands of smartphones and tablets has affected Taiwan’s original brand manufacturing whereas manufacturers of electronics parts have benefited from order-switching deals,” the economist said.
Taiwan Semiconductor Manufacturing Co (台積電), the world’s largest contract chipmaker, has survived the slowdown unscathed, while smartphone maker HTC Corp (宏達電) and PC vendor Acer Inc (宏碁) have suffered a decline in sales.
However, global demand for semi-conductors has started to see a correction given the latest book-to-bill ratios from industry body SEMI, Yeung said.
If the consumer electronics market were to be saturated, segments upstream in the supply chain will be adversely impacted, the economist cautioned, adding that Taiwan could be hard hit, as the tech sector represents 28 percent of total industrial production.
Global competition could pose a serious challenge if Taiwan drags its feet in mapping out a long-term response strategy, ANZ said.
“Being a contractor is obviously insufficient in today’s environment as brand owners often earn much of the value added,” Yeung said, citing South Korea as a strong example of combining brand value with its technological infrastructure.
The government also needs to address the misalignment between its economic performance and income growth, a mismatch that has limited the government’s ability to tax and in turn leads to persistent fiscal deficits, Yeung said.
ANZ said it has yet to see a comprehensive policy package to cope with the fundamental issues affecting the labor market, fiscal situation and industrial affairs, though the government has launched several measures.
“Without a macro blueprint, it is difficult for business and the general public to evaluate the economic future in the long run,” Yeung said.