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Taiwan Business Forecast Report Q4 2012

Taiwan Business Forecast Report Q4 2012 - new country guide report published

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2013-01-01 02:35:53 - Taiwan Business Forecast Report Q4 2012 - a new country guide report on

Our growth forecasts for 2012 stands at 1.6% which remains below the government´s recently revised forecast of 2.1% and Bloomberg´s consensus of 2.4% respectively. We expect continuing global trade weakness to weigh on Taiwan´s trade activity. A downbeat outlook in key export markets is likely to place considerable downside pressure on demand for Taiwanese goods. Fuel and electricity price hikes are likely to provide a boost to consumer prices, although we expect such a move to be transitory as households adjust their consumption patterns, spending more on utilities and scaling back on other components.

As the global economy continues to labour on, we believe that grounds still remain for the central bank to enact further policy easing. The central bank has



already embarked on some measure of monetary easing by slashing the overnight lending rate eight times in just one week in mid-July. Consequently, we expect one 12.5 basis point-interest rate cut going forward. A watered-down proposal of the capital gains tax on stock transactions was passed by legislation and is slated to take effect in January 2013. We maintain that the tax is unlikely to adversely affect investor sentiment towards the local bourse, nor our fundamental liking of Taiwanese equities.

Major Forecast Changes

We have downgraded our real GDP growth forecasts for 2012 from 2.4% to 1.6%, with changes in our estimates for private consumption, investment, export and imports behind the revision headline growth. We now see private consumption, gross fixed capital formation, exports and imports growth coming in at 1.7%, -1.0%, -2.5% and -4.0% respectively. Following effects from the power tariff hikes on consumer prices, we have revised our inflation forecasts upwards. We expect consumer price inflation to average 1.8% through 2012 and end the year at 1.6%.

Key Risks To Outlook

Downside Risks To Growth Forecast: The economic landscape in the eurozone looks increasingly precarious. Should we see a fullblown crisis in the currency bloc, or a downward spiral in China´s economy, we can expect Taiwan to head into a sharp recession.

Upside Risks To Investments Forecast: The government has announced its intention to allow a ´third wave´ of liberalisation towards Chinese investment in the economy. 90% of the manufacturing sector and 50% of business in the services will be opened to investment from the mainland. Crucially, the government is also looking to allow investments into Taiwanese infrastructure, with the exception of telecommunications.

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Mike King
Phone: London: +44 (0) 203 086 8600

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