JPMorgan Chase Bank has revised upward its economic growth forecasts for Taiwan this year, after the latest government data showed the nation closed out last year with one of its best quarterly expansions in a year.
The US bank now expects Taiwan’s economy to expand 4.5 percent this year, up from its previous estimate of 3.1 percent growth, according to a report released on Wednesday.
Earlier last week, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said the expansion came in stronger than expected for the October-to-December quarter, thanks to solid private spending and domestic investment as well as stronger exports.
GDP grew 2.92 percent year-on-year last quarter, following a 1.66 percent increase in the previous quarter, the DGBAS said. The last time the economy expanded by nearly 3 percent in a quarter on an annual basis was the fourth quarter of 2012, when it grew 3.85 percent.
“Taiwan’s fourth-quarter GDP beat expectations, consistent with the positive tone in other recent data,” Hong Kong-based JPMorgan Chase economists Grace Ng (吳向紅) and Lu Jiang (姜璐) said in the report.
The recent data Ng and Jiang referred to include Taiwan’s industrial production for the December quarter, which rose 1.66 percent quarter-on-quarter and grew 1.69 percent year-on-year, and export orders, which increased 10.9 percent from the previous quarter and 3.8 percent from a year earlier to a record level of US$122.95 billion.
In addition, domestic manufacturing activity showed continued improvement in December, with the official purchasing managers’ index (PMI) rising to its highest level since June, the Chung-Hua Institution for Economic Research (中華經濟研究院) said last month.
A further upside for the nation’s economy was added by domestic commercial sales, which hit a record-high NT$3.7 trillion (US$122 billion) in the final quarter of last year, up 2.0 percent from the previous quarter and 2.6 percent from the prior year, according to the Ministry of Economic Affairs’ data.
Overall, it appears solid expansion in the manufacturing sector, benefiting from a pick-up in momentum in developed markets, has been feeding through to domestic demand,” Ng and Jiang said.
Under the DGBAS’ preliminary estimate, the GDP grew 2.19 percent for the whole of last year, higher than the 1.74 percent the agency previously forecast.
The DGBAS is set to release the final fourth-quarter GDP figure on Feb. 18, while updating its full-year GDP growth forecast for this year. In November, the agency forecast the economy would grow 2.59 percent for this year.
Hong Kong-based HSBC Ltd economist John Zhu (朱日平) is also upbeat about Taiwan’s near-term outlook, saying the growth momentum should continue into this quarter.
“For the first time in years, a recovery in the developed world seems to have properly taken hold. The acceleration in the second half of 2013 in the US, the UK and the return to growth in the euro area has clearly benefited Taiwan’s export sector,” Zhu said in a separate report on Wednesday.
With fixed capital formation expanding 9.74 percent year-on-year last quarter on the back of capital investments by semiconductor firms, Zhu said recovering domestic investment is also an encouraging sign for the economy. In the third quarter, fixed capital formation grew by just 1.04 percent year-on-year.
However, a number of obstacles could still prevent Taiwan from seeing a full-fledged recovery this year, Daiwa Capital Markets economist Christie Chien (簡民惠) warns.
In a research note issued on Tuesday, Chien said an economic slowdown in China and the potential risks of loan defaults by Chinese businesses could weigh on Taiwan’s economic prospects this year.
“Given the close relationship between Taiwan and China, any default in China could add financing pressure to Taiwanese firms, as they usually serve as upstream suppliers to their Chinese peers,” she wrote in the note.
And, despite a demand recovery in developed economies, the weakness in the emerging markets remains a downside risk to Taiwan’s exports, she added, citing a decline of 4.5 percent year-on-year in Taiwanese exports to ASEAN last quarter.
Daiwa also believes the strength of domestic demand is insufficient to support the economy, adding that the nation needs to see income growth and further improvement in the labor market if it is to sustain consumption momentum.
“Likewise, optimistic sentiment has been more concentrated on the electronics sectors. Whether the positive sentiment can spread to lift investment in the whole economy remains unknown,” Chien said.
Daiwa expects Taiwan’s GDP to grow 2.7 percent this year.
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