Taiwan's GDP growth target for this year is expected to stay at 6 percent, underpinned by the nation's robust exports to China and a sharp rise in foreign reserves, the global investment bank Lehman Brothers said in a report released on Thursday.
The report is very bullish about Taiwan, said Rob Subbaraman, the firm's senior economist for Asia, as the country has become a global pacesetter in two important respects.
PHOTO: REUTERS
"First is the speed with which it is integrating economically with China and second is the sheer scale of its forex intervention over the past year, leaving the economy flush with liquidity," Subbaraman said in the report.
Taiwan exported goods to the value of US$35.4 billion to China last year, up 20 percent from a year ago, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said earlier this month.
China is now the nation's biggest overseas market, buying about 24.5 percent of its exports last year, DGBAS said.
Moreover, Subbaraman noted that Taiwanese investors in China have been well-rewarded, as manifested in a 26 percent rise in exports during the first two months compared to the previous year.
"Taiwan's direct exports to China, which are growing by more than 100 percent year-on-year, are underpinning this strong growth," he said.
Lehman Brothers attributed its bullish view over Taiwan to the nation's greater economic integration with China. The firm said this has surpassed Taiwan's initial adjustment costs associated with hollowing-out dynamics.
The jobless rate dropped 0.05 percent to about 4.53 percent in January, the DGBAS said late last month, which was an improvement from a high of 5.21 percent last August.
Subbaraman also said that the nation's exchange rate is at its most competitive in more than three decades, as the central bank intervenes to help stabilize the local currency against the weakening US greenback.
The central bank has been selling the NT dollar to slow its advance against the US dollar over the last few months, with an aim to protect the nation's export-led economy.
As of the end of January, the government held US$214.926 billion worth of foreign exchange reserves, behind only Japan with US$673.529 billion and China with US$403.251 billion, the bank said last month.
Another US investment bank Goldman Sacks last month raised its GDP growth forecasts for Taiwan this year and next year to 6.3 percent and 5.6 percent, respectively, from 5.8 percent and 5.3 percent it predicted previously. Goldman Sacks said it made the upward revision based on an improving investor sentiment toward Taiwan.
But as Subbaraman warned in the Lehman Brothers report, there are two underlined risks that Taiwan is facing: Today's election might trigger more tension in cross-strait relations and a possible sudden dip in China's economy.
"Nevertheless, our judgement is that China will engineer a soft economic landing this year at around 8 percent GDP growth, and the risks to this forecast are skewed more toward the investment boom continuing than to a hard economic landing for this year," he said.
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