The nation’s GDP growth is expected to increase 2.1 percent next year on the back of a global recovery, DBS Bank said yesterday.
The forecast is higher than the 1.87 percent expansion forecast by the Directorate-General of Budget, Accounting and Statistics (DGBAS) earlier this month.
The government agency expects GDP to grow 1.35 percent annually this year, which is also lower than the annual growth rate of 1.5 percent projected by the Singapore-based bank.
DBS said the technology sector would be the main driver for the nation’s economic growth next year.
As Apple Inc is to roll out the first redesign of its smartphone in the past three years, it might spark a demand spike not seen since 2012, Singapore-based DBS Bank economist Ma Tieying (馬鐵英) said.
Despite the improved outlook, the recovery is not expected to stimulate tangible growth in employment, wages or demand, Ma said.
Although the technology sector represents 15 percent of the nation’s economy, it only employs 8 percent of the workforce. Earnings prospects for non-technology and services sectors remain uncertain in the absence of favorable developments, she said.
Taiwan’s economic growth could face immediate challenges from its aging population beginning next year, she said.
“An aging population is the primary cause leading to Taiwan’s low-trending interest rates and growth,” Ma said.
The workforce began to decline this year and by the end of next year, the number of retirees more than 64 years old is expected to overtake the number of people under 15 years old, Ma said.
By 2018, retirees would make up 14 percent of the population, posing a significant drag to growth momentum, Ma said, adding that the demographic shift would also affect the real-estate market, as the number of first-time home buyers diminishes.
However, an aging population would spur development in the medical and healthcare industries.
The local market would continue to contract as the population ages and compel businesses to seek investment opportunities abroad, she said.
As a result, private funds have been flowing out of Taiwan seeking higher returns, in particular life insurers, who are hard pressed to meet repayment needs for the growing number of retired policy subscribers.
At the same time, the pace of private capital outflow is expected to accelerate following the US Federal Reserve’s expected rate hike, but the trend is not a cause for concern, as private capital outflows are typically more orderly and can be government regulated, she said.
Ma is not concerned about the more severe market disruptions from the flight of foreign capital from Taiwan, as with other emerging economies, due to a limited exposure to foreign debt and sound balance of payments.
She added that DBS sees a more hawkish Fed next year and expects a total of four interest rate hikes, compared with the general consensus of two.
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