DBS Bank Ltd has lowered its growth forecast for Taiwan’s economy this year to 2.9 percent from the 3.9 percent it predicted in July amid growing signs of a manufacturing downturn.
Economic indicators point to a downturn, with the manufacturing purchasing managers’ index contracting last month, export orders falling in July and industrial production growing at a slower pace in July, DBS Bank senior economist Ma Tieying (馬鐵英) said in a report released yesterday.
The Singapore-based bank is the first financial services company to cut Taiwan’s forecast GDP growth to below 3 percent.
Photo: Ann Wang, Reuters
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Although Taiwanese exports surged 14 percent annually in July, the momentum would slow over the next three months, as exports are correlated with export orders and industrial production, Ma said.
Exports would remain in positive territory, but growth would be milder, likely by a single-digit rate, she said.
Demand for Taiwanese electronic components, as well as information and communications technology products, lost steam in July because of the deterioration in global economies, lower consumer disposable income amid surging inflation and rising interest rates, Ma said.
Although the ongoing technology downturn is a typical and cyclical adjustment, it would be a drag on Taiwan’s economy, Ma said, adding that the inventory-to-shipment ratio of Taiwan’s electronic components sector is close to the level in early 2019, when destocking took about two to three quarters.
Destocking is likely to continue until the end of June next year, she said, adding that leading chip companies such as Taiwan Semiconductor Manufacturing Co (台積電) and Vanguard International Semiconductor Corp (世界先進) are on the same page.
DBS Bank also lowered its forecast for Taiwan’s GDP growth next year to 2.3 percent, from 2.8 percent.
On a quarterly basis, Taiwan’s GDP could shrink at most by 1 percent year-on-year in the fourth quarter of this year or first quarter of next year, before returning to positive territory in the following quarters, Ma said.
However, the bank believes that Taiwan’s economy could avoid a contraction, with consumption and the services sectors likely providing a cushion to offset the decline in exports, Ma said.
With the US Federal Reserve expected to continue raising interest rates, Taiwan’s central bank is forecast to hike its rate by 12.5 basis points each this month and in December to rein in inflation, Ma said.
DBS does not expect the central bank to raise interest rates further next year as it shifts to a more a balanced policy stance after seeing an easing in domestic inflation, she said.
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