Taiwan’s economy could expand 2.2 percent this year, decelerating from 2.6 percent last year, as a less favorable external environment and a US-China trade dispute would continue to constrain its exports, French corporate and investment banking group Natixis SA said.
“External headwinds are creating more uncertainties in Asia and Taiwan is feeling the squeeze,” Natixis Hong Kong-based Asia-Pacific chief economist Alicia Garcia Herrero said.
Garcia Herrero forecast that Taiwan’s GDP growth would moderate from 2.6 percent to 2.2 percent due to softening demand for technology products.
Taiwan is home to the world’s largest suppliers of electronics used in smartphones, laptops, TVs and peripheral devices.
Besides the risks of the US-China trade spat, a lengthened smartphone replacement cycle poses challenges to the trade-dependent economy before the rollout of 5G technology and related equipment, Garcia Herrero said.
In the first two months of this year, the nation’s exports declined 4.1 percent, dragged by weak demand from China — including re-exports through Hong Kong — and slow expansion in ASEAN markets, the economist said.
Export orders, which foretell actual shipments one to three months ahead, shrank 8.1 percent in the first two months, she said.
In particular, shipments of machinery and electrical equipment took a more drastic hit as firms turned cautious about capital spending, she added.
Exports, which constitute 70 percent of GDP in Taiwan, might not come out of the woods, with a likely decline of 2.81 percent for this quarter and 1.95 percent next quarter, the Directorate-General of Budget, Accounting and Statistics said last month.
Developed markets, particularly the US, have provided a much-needed buffer, with their economy faring better amid a global slowdown, Garcia Herrero said.
The good news is that investment has improved after foreign direct investment grew 50 percent last year, especially in the manufacturing sector by European firms, Natixis said.
Foreign investment could help the government’s efforts to pursue industrial diversification and groom new industry, especially in the development of offshore wind energy sources, the banking group said.
In addition, Taiwanese firms based in China plan to repatriate facilities to take advantage of the government’s incentives and avoid extra tariffs imposed by Washington on Chinese exports, it said.
“We expect investment to continue improvement in the future,” Garcia Herrero said.
The backdrop would give the central bank room to maintain its accommodative monetary policy stance this year, she said.
The central bank last week kept its policy rates unchanged for the 11th consecutive quarter, citing a need to help support the economy.
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