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Taiwan Business Forecast Report Q3 2013

Taiwan Business Forecast Report Q3 2013 - new country guide report published

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2014-02-19 08:43:01 - Taiwan Business Forecast Report Q3 2013 - a new country guide report on

Our growth forecasts for 2013 stands at 3.0%, which remains below a Bloomberg consensus of 3.4%.

While the contraction in Taiwan´s economy in Q113 surprised to the downside, it reaffirms our relatively less sanguine expectations of Taiwan´s economic growth prospects for the rest of the year. We have started to witness incipient signs that the economic pick up that started in the latter stages of 2012 may be starting to wane. That said, we highlight some upside risks in the rebound in homebound investment as well as a current spate of new product launches in the global tech industry.

While we expect monetary policy to remain accommodative, we do not expect Taiwan´s central bank to follow in the footsteps of Japan and



undertake aggressive monetary easing. On top of already having sufficient liquidity in the economy, aggressive easing is likely to lead to considerable speculative consequently volatility in the currency markets. We expect the central bank to maintain the benchmark 10-day discount rate at its current level through the rest here.

Taiwan´s cabinet approved a draft bill of a series of reforms to the country´s pension systems in April. While we believe these reforms are a step in the right direction, we believe these measures are inadequate to reverse the deterioration in the country´s fiscal position over the longer term.

We believe that Taiwan is likely to proceed with the operation of its fourth nuclear plant, for now. In the event that it fails to come online, however, Taiwan´s economy would not just face a higher energy bill, but more importantly, the attractiveness of its business environment would also likely to be diminished, consequently presenting a considerable threat to the country´s industrial-led economic model.

Major Forecast Changes

We believe the lingering presence of the government within the banking sector, an increasingly uncompetitive tech sector, an overly tech-focused economy and the reluctance to speed up Chinese investment, will impede Taiwan´s structural growth prospects. Moreover, a rigid labour market, coupled with fast deteriorating demographics will serve to erode the attractive of Taiwan´s business environment.

We have consequently revised our longer term growth expectations and expect real GDP growth to average 3.9% between 2014 and 2022, compared with a previous projection of 4.7%.

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 recessionThe price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.

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

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