Taiwan’s economy is to grow by about 4.5 percent year-on-year this quarter, following an estimated 3 percent expansion last quarter, as third-quarter data on export orders and retail sales are likely to improve due to the effects of China’s restrictive COVID-19 lockdown measures and falling numbers of COVID-19 cases in Taiwan, DBS Bank Ltd said on Friday.
The momentum should decrease in the fourth quarter, with projected GDP growth of 2.8 percent from a year earlier, as downside risks are likely to re-emerge from softening US demand, among other factors, DBS said in a report.
The US is Taiwan’s largest source of final export demand, accounting for 30 percent of export orders last year, the report said.
Photo: CNA
Economic growth in the second half of this year is expected to reach 3.65 percent, up from 3.05 percent in the first half, as a significant improvement in private consumption is likely to offset the decelerated pace of export growth, it said.
Consumer demand is expected to reach its lowest point this quarter and recover next quarter, as the number of COVID-19 cases subsides and border controls ease, DBS said.
However, there are growing concerns about a cyclical downturn in the tech sector, a pillar of Taiwan’s economy, it said.
Global shipments of PCs, tablet computers and mobile phones are expected to contract 7.6 percent this year, DBS said, citing a projection by Gartner Inc.
Meanwhile, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) on Thursday warned that the risk of inventory adjustments in the semiconductor sector could extend through the first half of next year.
DBS assessed the local economic effects of the Ukraine invasion, the US Federal Reserve’s monetary tightening and the lockdowns in China, and revised its GDP growth forecasts downward for this year and next year, the report said.
“We are revising the 2022 GDP growth forecast down to 3.4 percent from 3.8 percent,” Singapore-based DBS economist Ma Tieying (馬鐵英) said in the report. “The growth forecast for 2023 is also trimmed to 2.8 percent from 3.0 percent.”
DBS’ forecast for this year is more conservative than those of the Directorate-General of Budget, Accounting and Statistics (DGBAS), which projected 3.91 percent growth, and the central bank, which forecast 3.75 percent.
The S&P Global Ratings forecast for this year was the most pessimistic, at 2.8 percent.
If international oil and food prices do not rise in the second half of the year and inflation expectations anchor at current levels, the consumer price index (CPI) might have peaked last month and could ease below 3 percent by the end of this year, the report said.
Therefore, DBS projected the CPI for this year at 3 percent and kept its 1.8 percent forecast for next year unchanged.
However, its inflation projection for this year is higher than the DGBAS’ 2.67 percent and the central bank’s 2.83 percent.
In an effort to ease inflation concerns, the central bank is expected to increase its policy interest rates, increase the issuance of certificates of deposit and adjust the reserve requirement ratio of local banks to absorb excess liquidity in the market, the report said.
“We maintain the forecast for the central bank to hike rates by 12.5 basis points per quarter, taking the policy discount rate to 1.75 percent at the end of 2022 and 2.25 percent at the end of 2023,” Ma said. “We don’t expect outsized rate hikes from the central bank, as inflation pressure in Taiwan is not as serious as in the US or other advanced Asian economies like South Korea and Singapore.”
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