The Australia and New Zealand Banking Group Ltd (ANZ) last week forecast that GDP growth in Taiwan would expand 1.7 percent this year, down from 3 percent projected in March.
“We are mindful of downside risks to Taiwan’s economy going forward, although its exports outperformed last quarter, propelled by a rebound in non-technology sectors,” ANZ economists Kaushik Baidya and Betty Wang (王蕊) said in a report.
The spikes in Taiwan’s export orders are not sustainable, they said.
“Although the effects of US-China trade tensions have yet to manifest in the export-focused economy of Taiwan, it is possible that local manufacturers front-loaded their orders and distorted the data somewhat,” they said.
If their theory proves true, there might be a strong drag on exports in the second half of this year, as information and communications technology (ICT) exports have been sluggish in the past few months amid a slow sales season.
US-China trade tensions would affect China’s trading partners along regional supply chains, with Taiwan particularly vulnerable due to its heavy reliance on the market, the economists said.
“The export outlook is clouded by the ongoing trade dispute between the US and China... Any impact on China, especially in the technology sectors, will have heavy spillover effects on Taiwan, given its key role in the regional supply chain,” they said.
Overall, global trade tensions, a cyclical downturn in the ICT sector and monetary policy normalization by major central banks pose the biggest threats, they said, adding that heightened volatility across global stock markets could have a negative effect on private consumption.
ANZ is pessimistic about domestic consumption in Taiwan, fearing that it might also fall victim to external headwinds.
The benchmark TAIEX has already decreased 5.1 percent, from a peak of 11,251 points on June 7 to 10,676 yesterday.
Foreign players have been net sellers of local shares, with capital outflows amounting to US$12 billion from February to last month, ANZ tallies showed.
A negative wealth effect could dampen consumer confidence and discourage household consumption, ANZ said.
Although a weak New Taiwan dollar and elevated energy prices might push up consumer inflation to 1.6 percent this year, it would not be strong enough to trigger any interest rate hikes by the central bank in the coming six months, ANZ said.
The NT dollar would likely trade at an average of NT$30.5 against the US dollar this quarter and at NT$30.4 next quarter, the company added.
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