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Boston, MA -- (SBWIRE) -- 04/01/2013 -- Core Views
Our growth forecasts for 2013 stands at 3.0%, which remains below a Bloomberg consensus of 3.4%.
We expect the recent recovery in economic momentum to last through H113, before an expected slowing in China's economy begins to impinge on Taiwanese exporters again. Alongside pertinent indicators such capital goods imports and guidance from the corporate sector, we expect consensus expectations for real GDP growth to start moving towards our projections.
With inflation likely to remain well-contained and against a backdrop of economic uncertainty, we expect monetary policy to remain relatively accommodative. We expect the benchmark interest rate to remain unchanged at 1.875% while the central bank continues to actively intervene in the currency markets to suppress the Taiwan dollar in a bid to support exports.
Taiwan's President Ma Ying-jeou recently announced a series of proposed reforms to the country's pension system as poor management of pension benefits, rapidly deteriorating demographics, and hidden debts incurred by state-owned enterprises and local governments threaten to create a fiscal crisis. Notwithstanding the obvious benefits they engender, it remains to be seen whether Ma and his ruling Kuomintang party will be able to enact these reforms, given the political risk they will carry, especially into the 2016 elections.
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The political scene in 2013 is likely to be dominated by the government's pension reform efforts, as well as the impending resumption of negotiations on the Trade and Investment Framework Agreement (TIFA) with the US. We believe that the TIFA, if implemented successfully, is likely to engender significant benefits, both economic and political, for the country.
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 to a previous projection of 4.7%.
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