Growth momentum in Taiwan losing steam, GDP growth likely to be lower

TAIPEI - With Q1 GDP expanding 3.46% y/y, Taiwan was the best-performing of the Newly Industrialised Economies (NIEs). However, April’s exports (-11.7% y/y) dropped sharply, extending the weakness seen in Q1 as growth momentum started to lose steam.

ANZ Bank has now revised downwards its 2015 GDP forecast for Taiwan from 4.20% previously to 3.79%, and is maintaining its projection at 3.80% for 2016.
Taiwan’s CPI contracted 0.8% in April, and in the first four months of 2015, CPI declined 0.64% y/y. The lowering of energy prices contributed 1.5pcts to the drop.
“We now project that the CPI will decline 0.3% in 2015 (previously +0.1%),” ANZ says. “Since the negative CPI has been driven by supply-side factors, Taiwan is not falling into a deflationary spiral. We actually see the rising inflationary pressure in Taiwan given the recent pickup of crude oil prices and ongoing drought in the island.
“However, we do not think the CBC will cut interest rate in response to the growing uncertainty. In fact, CBC monetary policy has been accommodative. The market interest rate has been very low and onshore liquidity conditions remains ample. The central bank will also refrain from giving a wrong policy signal in view of a potential property bubble.”
ANZ adds that the weakness in exports will continue to concern Taiwan’s exchange rate policy, and that the CBC will continue to pay close attention to this. www.live.anz.com (ATI).