DBS Bank Ltd (星展銀行) has revised upward its GDP growth forecast for Taiwan this year to 2.3 percent, from 1.9 percent earlier this year, as the economy stands to benefit from the “trade diversion and investment repatriation effects” of the trade tensions between the US and China, as well as a recovery in the electronics sector.
The Singaporean bank also adjusted its economic growth forecast for Taiwan next year to 2 percent, up from 1.8 percent previously, a report released on Friday showed.
The bank’s GDP forecast came after Taiwan’s economy grew 2.91 percent annually in the third quarter, its strongest growth in five quarters, as exports regained traction from transferred orders, and rising domestic consumption and investment also lent support, the Directorate-General of Budget, Accounting and Statistics reported on Thursday.
Third-quarter GDP expanded more than the 2.41 percent growth seen in the second quarter and beat its forecast of about 2.5 percent, DBS said.
With growth averaging 2.4 percent in the first three quarters, Taiwan clearly outperformed its regional peers, as South Korea posted 1.9 percent growth, Singapore reported 0.4 percent growth and Hong Kong reported a 0.6 percent contraction over the period, the bank said.
“The [Taiwanese] economy may have started to benefit from the trade diversion and investment repatriation effects of the China-US trade war,” DBS economist Ma Tieying (馬鐵英) said in the report, adding that such effects are likely to persist next year.
“Regardless of a so-called phase 1 trade deal between China and the US in the near term, the two countries’ conflicts on thorny issues like industry subsidies and cybersecurity will likely remain in place for years,” Ma said. “The lingering uncertainties in China-US relations would continue to prompt Taiwanese manufacturers to diversify their supply chains.”
However, there is still the question of whether the electronics sector will continue to recover next year, she said.
Electronics account for more than 40 percent of Taiwan’s total exports, while exports of overall goods and services account for 77 percent of its GDP, according to DBS’ calculations.
“The overall global demand outlook remains weak, given the risk of US and China slowdown in 2020 and the unresolved trade tensions between the world’s largest economies,” Ma said. “Whether the electronics sector can sustain a recovery is a bigger question mark.”
Despite uncertain macroeconomic conditions around the world, downside risks to Taiwan’s economy are limited, as the economy is showing some signs of moderate positive traction, said Yen Chen-hui (顏承暉), a Taipei-based strategist at Yuanta-Polaris Research Institute (元大寶華綜經院), citing data from leading and coincident indicators.
The index of leading indicators, which is used to gauge the nation’s economic outlook for the next six months, had increased for nine months straight as of September, while the index of coincident indicators, which is used to gauge monthly economic conditions, had also improved for the third consecutive month in September, the National Development Council reported on Monday last week.
“Both the trend-adjusted leading index and coincident index are improving, which has preliminarily confirmed the economy has gained some positive traction,” Yen said in a note last week.
In addition, several non-cyclical factors are also supporting the nation’s economy, such as Taiwanese suppliers benefiting from current trends in the advanced semiconductor industry and accelerating global supply chain reshuffling, while the government is speeding up infrastructure investment, he said.
On Friday, the Chung-Hua Institution for Economic Research (中華經濟研究院) also reported that official manufacturing purchasing managers’ index expanded for the first time since April, with a reading of 51.1 for last month.
“In conclusion, although Taiwan’s economic growth is still very modest, the economy is gradually gaining upward traction,” Yen said.
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