Standard Chartered Bank Ltd yesterday raised its forecast for Taiwan’s economic growth next year to 1.6 percent from its earlier estimate of 1.4 percent on the back of recent improvements in exports and industrial output.
The bank also raised its forecast for GDP growth this year from 0.7 percent to 1.1 percent.
The forecast is higher than the 1.87 percent expansion forecast by the Directorate-General of Budget, Accounting and Statistics (DGBAS) last month.
Economic growth would be mainly driven by contributions from net trade gains, helped by a low comparison base set this year and a recovery in global commodity and oil prices, said Tony Phoo (符銘財), a Taipei-based economist with Standard Chartered.
Phoo said that gains in exports would be primarily concentrated in the technology sector.
The anticipated gains would also be heavily dependent on a few hot products, instead of an across-the-board improvement, he said.
“Taiwan’s economy would continue to face strong headwinds, given its high exposure to the global trade cycle,” he told a news conference.
As Taiwan, along with Japan and South Korea, does not have the same backing of robust domestic demand as China, India and Indonesia, there is a serious concern about a potentially more protectionist US trade policy under US president-elect Donald Trump, Phoo said.
Taiwan is especially vulnerable to possible escalation in trade and diplomatic rows between Washington and Beijing given the large footprints of Taiwanese businesses in both markets, but that would not be likely given the US’ dependency on imports, he said.
However, it will be difficult to implement Trump’s fiscal expansion policies given the current US economic conditions, he said.
Reaganomics was possible in the 1980s due to low household debt and a low savings rate in the US, but since then, there has been drastic changes, with 80 percent of households owing debt, with many of them saving up to 5 percent of their income after surviving the 2009 financial crisis, as opposed to 1 percent three decades ago, he said.
Trump’s pledge to pull the US out of the Trans-Pacific Partnership would raise the urgency for Taiwanese companies to expand investments and efforts in tapping into Southeast Asian markets, which is in line with the government’s “new southbound policy,” Phoo said.
Although the market has fully factored in the US Federal Reserve’s rate hike on Wednesday, a quicker-than-expected pace exceeding the three interest rate hikes forecasted for next year would have a negative impact on Taiwan’s equity markets, Phoo said.
“We are not expecting a major capital flight from displacement effect of the US rate hike, as interest rates remain negative at other developed markets,” he said.
In light of mild economic recovery in the US, the bank expects just one rate hike next year, in the fourth quarter, he said.
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