The Yuanta-Polaris Research Institute (元大寶華綜經院) yesterday raised its forecast for the nation’s GDP growth this year from 2.4 percent to 2.55 percent on better export activity, even though Taiwan consistently lags behind global growth.
However, the economic improvement might not benefit the New Taiwan dollar against the US dollar, as the greenback might remain strong going forward, aided by the trade tensions between the US and China as well as the US Federal Reserve's interest rate hikes, the Taipei-based think tank said.
“The global economy is likely to level off after hitting a plateau, lending support to Taiwan’s exports,” Yuanta-Polaris president Liang Kuo-yuan (梁國源) said.
Exports, which account for 70 percent of GDP, fared surprisingly stronger than expected with a double-digit percentage increase in the first five months of the year, prompting research institutes at home and abroad to revise up growth projections.
Other critical bellwethers such as the purchasing managers’ index, industrial production and export orders also point to stable expansions, Liang said.
Despite the upward revision, Taiwan’s growth rate remains low and behind the estimated 3.9 percent global pickup, he said.
Taiwan has underperformed global growth since 2000, with its correlation to global trade increasingly on the decline, he said.
The lackluster acquisition of capital equipment by local semiconductor manufacturers has raised suspicion that demand for electronic components might decelerate now that smartphone sales have declined, Liang said.
The brewing trade war between the US and other major economies pose the biggest headache for growth forecasts and the world might not have a concrete grasp on it until the fourth quarter, the institute said.
“Not until the US and China show their hand can economists put a number on the impact,” Liang said.
The Federal Reserve might support a strong US dollar with more interest-rate hikes to help attract global capital away from emerging markets, unless the US economy loses steam or deflates, he said.
The institute expects the NT dollar to trade at an average of NT$30.1 against the US dollar this year, from the NT$29.1 it forecast three months earlier, he said.
Economists had been divided about the greenback’s movements, but now agree about the currency’s uptrend, as the US dollar has since April climbed faster than expected.
Liang voiced concern about electricity supply shortages during summer, saying that the government should raise the reserve ratio if it aims to phase out nuclear power by 2025.
Renewable energy sources are known to lack resiliency and nations that are reliant on renewables tend to keep high reserve ratios to prevent power shortages, he said.
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