UBS Group AG trimmed its GDP forecast for Taiwan this year from 2.6 percent to 2.3 percent, saying that exports might continue to soften amid headwinds from the US-China trade dispute.
“The surprising weakness in exports last year has lowered the starting point for this year. As a result, we revise down our GDP growth forecast for this year from 2.6 percent to 2.3 percent,” said Zeng Li (曾立), the group’s senior economist on North Asia.
Real GDP grew only 2.1 percent in the second half of last year, much slower than the 3.2 percent in the first half, due largely to weak exports, Zeng said.
The bank’s forecast is close the Directorate-General of Budget, Accounting and Statistics’ prediction this month of 2.27 percent growth.
Exports, which account for 70 percent of Taiwan’s GDP, rose 10.9 percent in the first half of last year, but slowed to 3 percent in the third quarter and stayed flat in the fourth quarter compared with a year earlier, he said.
The economy is likely to remain listless due to headwinds from the trade dispute before rebounding next year as the global economic environment stabilizes, he said.
UBS also slashed its forecast for Taiwan’s inflation outlook for this year after consumer prices surprised on the downside late last year.
The weakness seemed broad-based and likely reflected the general softness of the economy, while lower oil and food prices partially accounted for the trend, Zeng said.
UBS cut its consumer price index growth forecast for this year from 1.4 percent to 0.8 percent based on the latest inflation and growth outlooks.
“We no longer anticipate any policy rate hike this year,” Zeng said.
He previously predicted there would be two hikes of 12.5 basis points in the year ahead.
With weaker growth and inflation outlook as well as diminished external pressure with the US Federal Reserve shifting to a more dovish position, Taiwan’s central bank has more room to extend its easy monetary approach, Zeng said.
However, the central bank might raise interest rates twice next year, by 12.5 basis points each time, to prevent interest rates from staying too low for too long, UBS said.
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