Taiwan’s economy is forecast to grow 1.99 percent this year and further expand by 3.33 percent next year, Australia and New Zealand Banking Group (ANZ) said yesterday, as the nation has fully emerged from the COVID-19 pandemic.
“Taiwan has come out of the virus shock after clocking 3.3 percent growth last quarter, meaning its economy has recovered to the pre-pandemic level,” the foreign banking group said.
The impressive showing merited a growth upgrade of 0.8 percentage points from its previous forecast for this year, but it masked a diverging path for its two growth engines — external demand and domestic consumption, ANZ said.
From January to September, private consumption contracted 2.67 percent from a year earlier, while net external demand expanded 9.15 percent, it said, citing government statistics.
Private consumption accounts for half of GDP, and its growth rate has stayed at about 2 to 3 percent in the past five years, ANZ said.
More than half of private consumption is spent on housing, utilities, food, transport, restaurants and hotels, it said.
Taiwan has not imposed lockdowns to curb virus infections, but travel restrictions and the absence of foreign tourists slowed some sectors, it said.
On the other hand, the pandemic has been a tailwind for exports of technology products, such as chips, camera lenses, touch panels, battery packs, casings, printed circuit boards and passive components.
The launches of 5G-enabled devices by global technology brands placed Taiwan’s high-end fabrication facilities at the center of tech-driven gains, it said.
Additionally, remote-working requirements boosted demand for computers and related applications, it said.
The twists present Taiwanese policymakers with a unique challenge as they seek to support the economy, ANZ said.
Inflation has been structurally low for nearly a decade, given that the core consumer price index has not risen above the 2 percent target since 2010, it said.
The consumer price index has been in negative territory for the past nine months.
The government has rolled out fiscal packages and the central bank has cut its policy rate to an all-time low, ANZ said.
The tech sector’s solid performance has driven up the local currency against the US dollar and its recent appreciation to its highest level since 2011 is adding disinflationary pressure, the bank said.
Taiwan needs structural measures to address this dual-track economic path, as weak private consumption and structurally low inflation are concerning, it said.
Policymakers will need to focus on structural measures, instead of conventional stimulus, to tackle the challenge, it said.
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