Despite a modest growth this year, Taiwan’s economic outlook remains optimistic in the long term, thanks to investment liberalization with China and global partners, DBS Bank said in a recent report.
The government has introduced a number of initiatives in the past few months to promote trade and investment liberalization, not only with China, but also with global partners.
“As the reform progress is on track, the economy’s long term outlook remains constructive,” DBS economist Ma Tieying (馬鐵英) said after forecasting a mild GDP growth of 2.6 percent for Taiwan this year and 3.3 percent next year.
Ma attributed the forecast to a weak global economic outlook, which will in turn constrain demand for Taiwan’s exports, the main growth driver.
However, Taiwan is continuously making progress on trade and investment liberalization, which bodes well for its long-term economic prospects, Ma said.
The nation has benefited from growing service exports to China since 2008, including growth in the tourism sector, the economist said.
The growth potential for tourism exports remains strong as the possibilities for further deregulation are plentiful, Ma said, forecasting related revenues to increase from US$3.7 billion to US$4.6 billion, or from 0.8 percent of GDP to 1 percent.
Service trade with China is poised to expand more broadly after the signing of a cross-strait service trade agreement in June, as the pact offers Taiwanese firms preferential treatment in accessing China’s services market in 80 sub-sectors, Ma said.
“The pact will further encourage Taiwanese firms to invest in China’s service sector, which will in turn drive cross-strait service trade on a broader basis,” she said.
The scope of Taiwan’s trade and investment liberalization is extending beyond China to global partners, DBS Bank said.
An economic cooperation agreement with New Zealand was signed in July, the first free-trade deal achieved with a foreign country that Taiwan does not have diplomatic relations with, Ma said, citing media reports in Taiwan that a quasi-free trade agreement (FTA) may also be signed with Singapore by the year end.
This may encourage other countries and regions with FTAs with China to study the feasibility of signing FTAs with Taiwan, such as ASEAN, Chile and Switzerland, Ma said.
In the short term, DBS expects GDP growth to remain soft due to risks in China and other emerging markets.
However, the central bank’s accommodating monetary policy and an unrestrained fiscal policy should be able to support domestic demand, the Singaporean bank said.
The central bank may keep interest rates low and unchanged for the rest of this year with inflation contracting 0.4 percent last month from a year earlier, the economist said.
A reduction in the US quantitative easing is not likely to cause drastic liquidity tightening in Taiwan’s markets, she said.