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Economics: Taiwan
Economics – Markets – Strategy
TW: Staying on track
• We have lifted the 2008 inflation forecast to 3.4% from 2.2%, reflecting
the surge in crude oil prices and the new government’s deregulation of
domestic oil prices
• We maintain our 2008 GDP forecast at an above-consensus 5.0%. Although
inflation would hurt consumption, investment recovery is expected to
be sustained on the back of improving investor sentiment, warmer crossstrait
economic ties and the new government’s promotion of infrastructure
construction
• With inflation risks outweighing growth risks, we project the central
bank to extend its rate hike cycle to the year-end. Hikes of 12.5bps per
quarter are expected at each of the next three MPC meetings in June,
September and December
TAIWAN
Strong exports and
defensive financial
markets are in line
with expectation
1H08 Recap
The economy moved smoothly through the first half of the year in spite of US
weakness and global financial market turmoil. In line with our expectations,
exports managed double-digit growth during Jan-May (averaged 17.5% YoY),
helped by still-robust demand from China and other emerging markets. Meanwhile,
despite generally weakening capital flows since the US subprime crisis, Taiwan
experienced rising foreign capital inflows and the repatriation of domestic capital
outflows in 1H08. Investor optimism has been reinforced following the opposition
KMT party’s winning of the presidential election in March, which laid the ground
for a stable political climate, closer cross-straits ties and therefore brighter economic
outlook. Foreign exchange reserves jumped as much as USD 19.8bn in Jan-May,
in sharp contrast with the USD 4.2bn increase recorded during the whole year of
2007. The Taiwan dollar appreciated an impressive 6% year-to-date, and the
TAIEX also well outperformed the regional stock markets.
The GDP report showed that
the economy expanded by
a decent and balanced 6.1%
YoY in 1Q08 (Chart 1). Net
exports and domestic demand
contributed almost equally
to the overall growth (2.9ppt
and 3.2ppt respectively).
Exports of goods and services
rose a steady 11.4%, not very
different from 11%-13%
registered in 3Q-4Q07. Private
consumption also remained
stable at 2.0%, close to its
trend rate over the past eight
quarters. Fixed investment
showed notable resilience,
bouncing back to 5.8% from
the temporary setback in 4Q07.
Chart 1: Solid growth
% YoY
12
8
4
0
-4
-8
PCE
GFCF
GDP
GCE
Net Exports
1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08
Ma Tie Ying • (65) 6878 2408 • matieying@dbs.com
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