Singapore-based DBS Bank earlier this week raised its forecast for growth in Taiwan’s gross domestic product (GDP) for 2021 to 5.5 percent, largely on the back of an increase in capital investment.
It is likely the central bank will raise its key interest rates in the second quarter of next year at the earliest, two quarters ahead of the bank’s earlier forecast, DBS said.
In a research note, DBS added that the latest forecast represents an upgrade of 0.5 percentage points from its previous estimate in April after capital goods imports to Taiwan surged by 63.5 percent from a year earlier in August. The increase suggests that manufacturers continued to expand capital expenditure in the third quarter at a time of strong global demand.
DBS highlighted the semiconductor industry in the expansion of capital investment in Taiwan.
Compared with several local research institutions which have raised their forecasts for GDP growth in Taiwan to 6 percent, DBS is a little more cautious, with the bank observing that Taiwan faces the risk of moderating export growth.
The bank’s latest forecast is also slightly less than the 5.88 percent increase expected by the Directorate General of Budget, Accounting and Statistics.
Ma Tieying (???), a DBS senior economist, said changes in China’s policies such as adjustments in its property market, power rationing and a focus on so-called “common prosperity” are expected to slow down the country’s demand and impact Taiwan’s exports.
Chinese President Xi Jinping (???) recently touted the common prosperity goal, which may speed up the pace of economic rebalancing in China by leaning towards consumption driven growth. Although that would reduce reliance on exports and investment, the policy could be damaging to growth driven by the private sector.
Ma said, the power curbs in China may also impact many Taiwanese tech companies, such as smartphone and computer assemblers as well as electronics component makers with production sites there. Ma said power rationing in China could become more apparent in the fourth quarter and continue to affect the world’s second largest economy into early next year.
China is the largest export market for Taiwan, accounting for 50 percent of all intermediate goods and making up 70 percent of intermediate electronic items made by Taiwanese manufacturers, according to DBS.
In addition, Ma said the spread of the Delta variant in Southeast Asia has led to massive lockdowns in several markets where many Taiwanese manufacturers have operations and are feeling the pinch from the unfavorable conditions.
Previously, DBS had predicted Taiwan’s central bank would kick off a rate hike cycle in the fourth quarter of next year, but as the surge in domestically transmitted COVID-19 cases, which started in mid-May is now under control, the central bank could start to tighten its monetary policy by raising interest rates in the second quarter.
In September, the central bank concluded a quarterly policymaking meeting and decided to leave its key interest rates unchanged for the sixth consecutive quarter with the discount rate at 1.125 percent, the lowest in Taiwan’s history.
While the central bank will continue to leave interest rates unchanged for some time, it will also come up with more select credit controls to rein in high home prices which have sparked an outcry among the younger generation, DBS said.
According to DBS, Taiwan’s home prices have risen about 10 percent two quarters in a low and the central bank is very likely to adopt measures to deal with the situation.
DBS also forecasts that Taiwan’s economy will grow 2.8 percent in 2022.
Source: Focus Taiwan News Channel