Morgan Stanley Asia Ltd has retained its GDP growth forecast for Taiwan at 3.1 percent for this year, but lowered its forecast for next year from 2.9 percent to 2.7 percent because of economic uncertainty, it said in a report released on Monday.
The firm’s projections are lower than consensus growth forecasts of 3.6 percent for this year and 2.8 percent for next year, the report said.
Taiwan’s economy would grow 3.1 percent year-on-year in the first quarter and 3.9 percent in the second quarter, it said.
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However, annual growth would slow in the second half of this year, rising 3.1 percent in the third quarter and 2.5 percent in the fourth quarter, it said.
Taiwan’s economy faces potential headwinds such as rising commodity prices, supply-side disruptions amid China’s “zero COVID-19” policy and declines in global demand, it said.
About 4.2 percent of Taiwan’s intermediate inputs and final use inputs come from China, the third highest among major Asian economies excluding Japan, the report said.
Taiwan’s computer, electronics and optical equipment sector, as well as the electrical and machinery sectors, are the most dependent on China for intermediate inputs, it said.
The effect of supply-chain disruptions in China is different from that of the chip supply shortage, Morgan Stanley said.
Upstream chip producers have somewhat benefited from the semiconductor shortage, while downstream firms suffered, it said.
By contrast, supply chain disruptions in China could affect both upstream and downstream firms in Asia, as China supplies more than 80 percent of global technology hardware, it said.
However, growth moderation in Taiwan would still be at a healthy level, as the nation is expected to benefit from the robust demand for technology products amid a long-term transition toward digitalization, automation and smart economies, the report said.
Besides, Taiwan’s shift from a “zero COVID-19” policy to a “new Taiwanese model” of coexisting with the virus, alongside high vaccination rates, should also help domestic demand to pick up in the second half of this year, it said.
Given higher commodity prices, Morgan Stanley expects the nation’s consumer price index to rise 3 percent this year and forecasts that the central bank would hike policy rates by 75 basis points by the end of this year.
The rates are likely to be raised to 1.625 percent at the end of this quarter, and further to 1.875 percent and 2.125 percent in the following two quarters, but might remain unchanged next year, it said.
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