Taiwan’s technology sector, in particular the semiconductor industry, is expected to remain a key driver of its economic growth next year, DBS Bank Ltd said in a report last week.
However, tech companies would still be pressured to shift sensitive production out of China and further diversify their supply chains as the US-China technology dispute takes root, the bank said.
Strong technology exports boosted the nation’s GDP, which expanded by a better-than-expected 3.92 percent year-on-year last quarter, the most since the second quarter of 2015. That prompted the Directorate-General of Budget, Accounting and Statistics (DGBAS) on Nov. 27 to adjust upward its full-year growth forecast to 2.54 percent from 1.56 percent.
The DGBAS predicted exports might remain strong this quarter and grow 7.75 percent year-on-year on the back of strong demand for new technology applications, but DBS said that global demand for computers and consumer electronics is expected to decline next year, as “the one-off purchases related to remote work and distance learning” driven by the COVID-19 pandemic dissipate.
However, demand for cloud services, data centers and 5G applications would likely continue to increase next year, as many countries build digital infrastructure and push digital transformation after the pandemic, DBS said.
In addition, smartphone demand is poised to recover next year as global income conditions improve and more consumers upgrade their smartphones as 5G networks expand, it said.
“Overall, the outlook for semiconductor demand remains constructive,” DBS economist Ma Tieying (馬鐵英) said in the report.
Taiwan has managed to maintain positive GDP growth this year despite the pandemic, which DBS forecast would expand 1.8 percent this year and 4.2 percent next year, citing the government’s early and effective response to the outbreak, as well as the tech sector’s strong performance.
Given the mild inflation outlook and the strong New Taiwan dollar, the central bank is expected to hold its policy interest rate steady at 1.125 percent through next year, as pressure to normalize rates would remain low in the near term, DBS said.
However, the potential impact of the US’ transition in leadership is worth watching, and there could be some tactical adjustments in US-China trade issues as multilateralism regains US support under US president-elect Joe Biden’s administration, the bank said.
Even though US-China trade tensions might improve under Biden’s presidency, the two countries’ tech sector rivalry would continue next year, DBS said, citing bipartisan concerns in the US about national security risks resulting from China’s advances in 5G, artificial intelligence and other new technologies.
Moreover, the COVID-19 has also caused companies to weigh the risks of geopolitical tensions among countries and diversify their supply chains, with some firms shifting their manufacturing base out of China to other Asian countries such as India, Vietnam and Thailand.
“To Taiwan, the trade disruption risk as a result of [the] China-US trade war may decrease in 2021. But pressure would remain for the Taiwanese tech companies to diversify their supply chains to hedge the risk of China-US tech tensions,” Ma said.
“In addition, [the] leadership transition in the US creates some uncertainties for the outlook of a bilateral free-trade agreement (FTA) between Taiwan and the US. The focus of Taiwan’s FTA talks may shift towards multilateral agreements like the CPTPP [Comprehensive and Progressive Agreement for Trans-Pacific Partnership] going forward,” she added.
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