Swiss banking giant UBS AG yesterday revised its forecast for Taiwan’s GDP growth upward from its previous estimate of 3.7 percent to 4.2 percent this year, adding that the central bank may resume interest rate hikes in the first half of the year after leaving key interest rates unchanged since June 2011.
Cyclical recovery has become more evident as shown by the better-than-expected GDP growth of 3.7 percent in the fourth quarter last year, UBS said.
Exports, which are equivalent to 70 percent of the nation’s nominal GDP, will be the key driver for the economy and corporate profits if demand from China keeps improving, the US economy holds up and no shocks hit Europe, the Swiss banking giant said.
A moderate export recovery, coupled with pent up demand and a growth in replacement demand, lends support to a rebound in capital spending after two years of investment contractions, UBS said, adding that investment generally makes up 20 percent of GDP, but has a much larger impact on growth because of the linkages with employment and consumption.
Private consumption could therefore increase to above 2 percent this year, from 1.5 percent last year, while inflation could ease to 1.5 percent, from 1.9 percent, amid stable energy costs, UBS said.
A stronger domestic economy plus receding external event risks, could prompt the central bank to veer from a neutral to a moderately tighter stance this year, UBS said.
“Recent data adds strength to our view the central bank could tighten in the first quater,” it said.