DBS Bank Ltd (星展銀行) expects Taiwan’s economy to grow at a slower pace next year, as the nation’s semiconductor sector is likely to face a correction and rate hikes are likely to have a greater impact on the local economy, Singapore-based DBS economist Ma Tieying (馬鐵英) told a videoconference yesterday.
The bank forecasts GDP growth of 3 percent for Taiwan next year, lower than a 3.8 percent expansion expected this year, Ma said, citing a slower pace of growth in private consumption, investment and exports.
Next year, private consumption is expected to grow 2.4 percent annually, compared with a projected increase of 3.9 percent, while investment is expected to grow 3 percent instead of 5.2 percent and exports are expected to grow 1.9 percent instead of 5.7 percent, Ma said.
Photo: Lee Chin-hui, Taipei Times
Last year, Taiwan’s GDP grew 6.45 percent, and the Directorate-General of Budget, Accounting and Statistics (DGBAS) estimated a 4.42 percent increase for this year. The DGBAS has not released its forecast for next year.
DBS raised its forecast for inflation in Taiwan for this year from 1.3 percent to 2.3 percent, given higher oil prices and persistent inflation overseas, which has resulted in imported inflation, Ma said.
However, the imported inflation is likely to be a short-term phenomenon, and the nation’s inflation is expected to ease to 1.2 percent next year, she said.
“Some other countries are worried that they might see a ‘wage-price spiral,’ which refers to a strong link between wage growth and inflation, but Taiwan is less likely to witness such a phenomenon, as local merchants tend not to pass on higher costs to customers and wage increases have been mild,” Ma said.
DBS expects the central bank to continue raising rates unless Taiwan faces a considerable downside risk.
As a rule of thumb, once the central bank begins to increase rates, it is likely to do so for a while, Ma said, adding that Taiwan’s benchmark discount rate is relatively low.
“In 2004, the cycle of rate increases lasted four years, while the latest one, in 2010, lasted about one year, but was interrupted by the European debt crisis,” Ma said.
DBS expects the central bank to raise its benchmark discount rate by a total of 87.5 basis points to 2.25 percent by the end of next year, Ma said.
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