Taiwan’s economy is expected to grow by about 6.1 percent year-on-year in the first quarter of this year, following a 5.09 percent expansion in the final quarter of last year, as recent data, such as exports, industrial production, capital goods imports and retail sales, all suggested a continued boom, DBS Bank Ltd said on Tuesday.
The momentum would increase in the second quarter, with projected GDP growth of 7.5 percent from a year earlier before easing back to 3.8 percent in the third quarter and 3 percent in the fourth quarter, DBS said in a report.
Economic growth for the whole of this year is expected to outpace last year’s 3.11 percent growth amid the COVID-19 pandemic, the report said.
Photo: Ritchie B. Tongo, EPA-EFE
“Our full-year GDP growth forecast for 2021 is lifted to 5 percent from 4.2 percent,” Singapore-based DBS economist Ma Tieying (馬鐵英) said in the report. “This will be the fastest pace over more than a decade, ever since the post-global financial crisis recovery in 2010.”
Taiwan’s economy grew 10.25 percent in 2010, Directorate-General of Budget, Accounting and Statistics data show.
Lifestyle changes amid the pandemic have put the Internet at the center of virtually everything and significantly boosted demand for semiconductors worldwide.
As a result, a global chip shortage would continue to support Taiwan’s exports and manufacturing sector in the near term, which would help offset the damage the nation — which contained its COVID-19 outbreak early on — has sustained from a slump in service sectors like aviation, tourism and hospitality, the report said.
However, as Taiwan is vaccinating its population at a slower pace than major Western and Asian countries, “until domestic herd immunity is achieved, the authorities would maintain a cautious stance on border opening, which would dampen the outlook for a full-fledged recovery in the services industry,” Ma said.
The strength of the local economy is piling more pressure on consumer prices, which caused DBS to lift its inflation forecast to an increase of 1.5 percent for this year, up from its previous estimate of 1 percent, the report said.
To ease concerns over asset inflation, the central bank is expected to exercise more open-market operations — such as increasing the number of certificates of deposit (CD) issuance and issuing longer-term CDs — instead of interest rate hikes to absorb excess liquidity in the market, along with further selective credit controls, it said.
“We expect Taiwan’s central bank to reinforce the non-rate measures to tighten liquidity this year,” Ma said. “Rate hike is still a central scenario for 2022, but it could come earlier than our current forecast of fourth quarter of 2022.”
While the demand for semiconductors benefits the economy of Taiwan, which is home to the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing Co (台積電), and forms an important industrial cluster of semiconductor supply chains, there are still challenges in the short and long term, the report said.
“First, Taiwanese semiconductor firms are facing pressure from the US to diversify their supply chains,” suggesting higher costs for taking this approach in the short term, Ma said. “Meanwhile, Taiwanese tech companies would face the competition pressure from China’s technology catchup in the coming years.”
In addition, the risk of supply chain disruptions due to geopolitical conflicts remains a threat, Ma said.
“Despite the truce in US-China trade war, the strategic competition between the two countries still poses uncertainties for global trade outlook,” she said.
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