Barclays PLC raised its forecast for Taiwan’s growth after the nation reached a trade deal with the US, although the bank joined other forecasters in seeing some downward pressure on the New Taiwan dollar over the medium-term.
Barclays raised its estimate for Taiwan’s GDP growth to 3.9 percent from 1.9 percent, the UK-based bank said in a report on Monday.
Barclays also no longer expects any monetary easing by the central bank this year.
Photo: Ritchie B. Tongo, EPA-EFE
“We believe near-term export momentum is likely to hold up amid reduced uncertainties,” Barclays economists said in the report, adding that the deal would also strengthen the strategic partnership between the two sides, with the artificial intelligence (AI) cycle remaining the key growth driver.
Last week, Taiwan’s trade negotiators announced a deal with the US that would lower tariffs on Taiwanese goods to 15 percent from 20 percent. Under the agreement, Taiwan’s tech firms would commit to US$250 billion of direct investment in the US, with the government providing up to US$250 billion in credit guarantees for future investment in the US.
The most important outcome in the trade deal is the reduced uncertainties around semiconductor tariffs, according to Barclays.
“We believe the waivers on Section 232 tariffs for 2.5 times the planned plant capacity in the US for Taiwan is likely to mean that semiconductor tariffs are effectively zero,” the report said.
The UK bank said there could be some near-term relief for the NT dollar following the deal, but changes in hedging rules for life insurers will weigh on the currency over time. Geopolitical risks for Taiwan also remain a factor.
Other analysts agree, with several saying that the potential US$250 billion of direct investment from Taiwanese companies would be of funds that would otherwise have been converted back into the NT dollar, which would be weaker going forward.
“Closer US–Taiwan investment ties mean a significant portion of export proceeds earned by Taiwanese companies is being reinvested overseas, rather than converted back into the local currency,” HSBC Holdings PLC analyst Joey Chew (周淑芬) said in a briefing on Monday.
While overseas investment by Taiwanese slowed last year, it is likely to increase this year.
Taiwan’s corporates continue to accumulate foreign exchange, BNP Paribas SA said in a report on the Jan. 19 to 25 market outlook, adding that Taiwanese clients see the US dollar as worth buying on the dip.
The NT dollar yesterday lost NT$0.018 to close at NT$31.608 in Taipei. The currency has depreciated about 0.6 percent this year in the face of a stronger US dollar and headwinds from local life insurers unwinding their currency-hedging positions.
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