Standard Chartered PLC yesterday raised its forecast for GDP growth in Taiwan this year from 2 percent to 2.3 percent, with momentum expected to be stronger in the second half of the year.
While the pace of GDP growth could slow to 2 percent in the first half, expansion is likely to pick up in June as inventory levels normalize across industries, said Tony Phoo (符銘財), a Taipei-based economist at Standard Chartered Bank Taiwan Ltd (渣打國際商銀).
GDP expansion is to accelerate in the second half compared with the low comparison basis set last year, Phoo said.
An uptick in global growth, the annual expansion of which is predicted to increase from 3.7 percent to 3.9 percent, is expected to support GDP growth, he added.
In light of the faster expansion, the central bank is likely to hike its benchmark interest rate in June, he said, adding that the increase would be the first since 2011.
With the consumer price index this year expected to rise from 0.5 percent to 1.3 percent, conditions are ripe for the central bank to raise its rediscount rate from 1.375 percent to 1.75 percent through three hikes, he said.
Other economic metrics such as the unemployment rate and private consumption are expected to remain favorable, Phoo added.
However, the strengthening of the New Taiwan dollar against the US dollar has helped to ease any urgency for the central bank to raise interest rates soon, he said.
Phoo said he supported the government’s decision to appoint central bank Deputy Governor Yang Chin-long (楊金龍) to succeed bank Governor Perng Fai-nan (彭淮南) and said the move should help ease market uncertainty as it signals continuity in the bank’s monetary policy.
Perng is to retire later this month after nearly 20 years, Cabinet spokesman Hsu Kuo-yung (徐國勇) said at a news conference earlier in the day.
However, Standard Chartered warned that the biggest risk this year is complacency toward looming developments as quantitative easing policies by major central banks begin to take effect.
More important than the US Federal Reserve, which is not expected to raise its federal funds target rate to beyond 3 percent this year, is the possibility of the removal or tapering of aggressive stimulus by the European Central Bank and the Bank of Japan, which might lead to a more detrimental effect on market sentiments, said Ding Shuang (丁爽), the Hong Kong-based chief China economist at Standard Chartered.
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