Australia and New Zealand Banking Group (ANZ) yesterday raised its growth forecast for Taiwan this year to 2.3 percent from its July prediction of 1.7 percent, as the effects of escalating US-China trade tensions seem to have been offset by holiday demand for electronics.
Economic data has been mixed, with resilient export orders, but slowing exports, the group said.
“Being a key player in the global information technology sector, the impact may become apparent in the coming months,” it said.
Equity flows are reflective of investor sentiment, it said, adding that after an outflow of US$11.8 billion between February and June, foreigners bought US$2.7 billion in the third quarter.
Investment sentiment might grow increasingly cautious as the trade war starts to bite, given Taiwan’s heavy participation in regional supply chains, it said.
Export orders rose in July and August and might have maintained its growth momentum last month, ANZ said, bucking the Ministry of Finance’s prediction for a mild decline due to fewer working days this year.
However, risks might rise as the trade war clouds export and growth outlooks, it said, adding that external uncertainties would also affect the pace of domestic demand to support growth.
In the second quarter, net exports were the biggest contributor to the 1.65 percentage point growth in GDP, ANZ said.
Private investment improved amid strong equipment and machinery imports in July and August, but the uptrend might prove temporary as holiday demand fades, it said.
In addition, private consumption seems to be losing steam despite a stable job market and wage increases, as evidenced by slower growth in monthly retail sales, it said.
Inflation continued to climb on the back of higher oil prices and the New Taiwan dollar’s depreciation, but headline inflation has stayed below the 2 percent alarm level and is unlikely to shift the central bank’s policy in the near term, ANZ said.
Volatility in some emerging markets seems to have had little impact on the financial market, although it is on the central bank’s radar, it said.
Liquidity remains ample and lacks signs of massive capital outflows after net foreign capital flows turned positive in July, it said, adding that foreign-exchange reserves are still increasing and could provide a buffer for external shocks if necessary.
“The central bank will therefore stay put until the first quarter of next year,” ANZ said, adding that interest rates might stay low in the near term, thanks to an accommodative monetary policy.
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