GDP growth is likely to slow to 3 percent this year from an estimated 3.4 percent increase last year due to an uneven global recovery that has been weakening growth momentum since last quarter, HSBC PLC said in a report this week.
The British banking group’s growth projection is softer than the forecast of 3.5 percent by the Directorate-General of Budget, Accounting and Statistics in November last year.
“Taiwan is set to have a challenging year in terms of economic showing, given relatively weak demand conditions abroad,” Hong Kong-based HSBC economist John Zhu (朱日平) said in the report dated on Monday.
The flagging momentum emerged toward the end of last year, when major economic data showed a significant slowdown, Zhu said, citing HSBC’s stagnant Taiwan manufacturing Purchasing Managers’ Index last month as an example.
In particular, the subindices on output and new orders contracted for the first time in more than a year, due to softening demand in China, Europe, Japan and Southeast Asia, the economist said.
The actual increase in manufacturing output slowed to 6.9 percent year-on-year in November last year, slowing from 9.1 percent in October and 10.9 percent in September, Zhu said, citing official data.
The figures suggest difficulty in sustaining the same growth rate as last year, when the economy might have increased by 3.4 percent, a significant improvement from 2.2 percent in 2013, Zhu said.
However, there is no need to panic, the report said, as the US will continue to lend support with its better-than-expected recovery, and unemployment and inflationary pressure will remain low.
HSBC expects the consumer price index to stay flat this year at 1.2 percent, higher than the government’s estimate of 0.9 percent, on concerns that the depreciating New Taiwan dollar could lead to higher import prices later this year.
The drag on inflation around the world from low crude oil prices is likely to persist in the first half of the year and could even deepen, Zhu said. However, there are no significant deflation risks on the horizon, he said.
The labor market will be the bright spot for Taiwan this year, after unemployment fell to 3.9 percent in November last year, its lowest since the global financial crisis began in 2008, the report said.
The headline jobless rate could drop to 3.7 percent by the end of this year, as the economy starts to rebalance toward domestic demand, aided by wage growth and a loose monetary policy stance, Zhu said.
Against such a backdrop, the central bank might keep the benchmark rediscount rate unchanged at 1.875 percent for all of this year, he said.
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