UBS Group AG yesterday revised its forecast for the nation’s GDP growth this year from 2.2 percent to 2.4 percent, but said that momentum is likely to soften next year due to waning exports and unfavorable inventory dynamics.
The nation’s GDP growth is expected to dip slightly to 2.3 percent next year, before recovering to 2.4 percent in 2019, the Swiss banking group said.
While robust growth in exports has propelled overall GDP growth this year, the same momentum is likely to fade next year in light of expected economic slowdown in the nation’s major trading partners, including China and Europe, UBS economist Tzeng Li (曾立) said in a report published on Nov. 13.
“We expect Asian trade growth to slow in 2018, in particular in China, where a property-led domestic growth slowdown is a key drag on regional trade growth,” Tzeng wrote in the report.
At the same time, while a full year’s worth of destocking throughout last year led to strong inventory demand this year, the same trend is not expected to be sustained next year, Tzeng said.
Government spending under the Forward-looking Infrastructure Development Program could offset economic headwinds, as well as stimulate private investment, Tzeng said, adding that given the nation’s strong fiscal position, it would be appropriate for the government to adopt more active fiscal policies.
In addition, GDP growth could exceed UBS’ forecast if global demand for new technology products picks up faster than expected, leading to stronger exports, Tzeng added.
However, Tzeng cited poor budget execution by the government as a major risk.
While the budget deficit was 0.9 percent of GDP last year, the actual outrun was only 0.3 percent, he said..
“If the same under-execution happens next year, especially if the government could not fully implement the special budget for the Forward-looking Infrastructure Development Program, it would cast downside risks to our growth forecasts,” Tzeng said.
Meanwhile, the central bank is expected to initiate two interest rate increases of 12.5 basis points next year, as well as two more increases in 2019, which would increase the policy rate from 1.365 percent to 1.875 percent, Tzeng said.
He said that the increases would not match the expected tightening by the US Federal Reserve and would likely lead to moderate capital outflows and depreciation of the New Taiwan dollar.
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