Australia and New Zealand Banking Group (ANZ) yesterday significantly raised its forecast for the nation’s GDP growth this year and next year as local technology firms outperform their regional rivals by shifting production back home to ease the impact of a US-China trade dispute.
ANZ expects the economy to expand 2.3 percent this year and 2.1 percent next year, up from 1.8 percent and 1.5 percent respectively, propelled mainly by a strong private investment.
“Taiwan’s GDP growth surprisingly outperformed that of other Asian electronics exporters, namely South Korea and Singapore, prompting us to reassess our forecast,” ANZ greater China senior economist Betty Wang (王蕊) said.
Government policy measures have been successful in bringing back manufacturers of high-value products, which would provide support to private investment and exports in the short term, Wang said after visiting Taiwan.
Several large Taiwanese manufacturers have shifted their production lines back home, and factory space and equipment are available in industrial areas, enabling production to commence quickly, Wang said.
Private investment, a key GDP component, jumped 5.2 percent in the past five quarters, while machinery imports, a barometer of corporate investment, surged an average 18 percent per month this year, she said.
There are also signs of recovery in the global semiconductor industry, lifting the outlook of the Taiwanese technology sector, she added.
A better-than-expected reception for new-generation smartphones is shoring up sentiment this quarter and a pickup in 5G demand from China could maintain the momentum going into next year, Wang said.
However, the relocation of production is not perennial and its magnitude could also be capped by supply constraints, such as labor and electricity, she said.
The recovery in the global semiconductor sector is not yet well-established given that corporate revenues are still declining, albeit at a slower pace, she added.
“As such, we remain cautious about Taiwan’s growth outlook in the second half of the year, not to mention the uncertainties surrounding the China-US trade negotiations,” Wang said.
An improved outlook for the semiconductor sector reinforces the view that the central bank would maintain its key policy interest rate at 1.375 percent for the foreseeable future, ANZ said, adding that the bank is under no pressure to cut its policy rates unlike its peers overseas.
A stock market rally amid robust inflows of foreign funds has boosted consumer sentiment and kept private consumption steady, it said.
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