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Taiwan Business Forecast Report Q3 2014

  • May 2014
  • -
  • Business Monitor International
  • -
  • 48 pages

Core Views

Taiwan's economy slowed in Q114 likely on the back of a moderating expansion in private consumption and exports. While we remain fairly constructive on Taiwan's trade prospects in the near term, we do not believe that recovering demand in the US and Europe will be able to overcome the drag from China's slowing economy, which will inadvertently weigh on the island's economy given its heavy reliance on the mainland. We, therefore, are happy to maintain our below-consensus (3.2%) real GDP growth forecast of 3.1%. From a political perspective, the recent student protests against the trade pact with mainland China may catalyse a widening divide within the ruling Kuomintang party, which would inadvertently lead to some instability within the political environment. In the event that the trade pact is rescinded, Taiwan could suffer longer-term economic implications stemming from not only a deterioration in ties with China, but also the inability to establish much-needed free trade agreements with its other trade partners.

The recent acceleration in Taiwan's consumer price inflation is more likely a result of weather-related food price inflation than a sustained pickup in economic activity. As pressures from food prices start to abate, while economic growth remains fairly moderate, inflationary pressures will remain well contained. We expect monetary conditions
to remain accommodative given that the central bank remains cautious towards the island's economic growth prospects.

Table Of Contents

Taiwan Business Forecast Report Q3 2014
Executive Summary . 5
Core Views 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis .. 7
BMI Political Risk Ratings .. 7
Foreign Policy 8
Retracting China Trade Agreement Carries Considerable Economic Risk .8
From a political perspective, the recent student protests against the trade pact with mainland China may catalyse a widening divide
within the ruling Kuomintang (KMT) party, which would inadvertently lead to some instability within the political environment. In the event
that the trade pact is rescinded, Taiwan could suffer longer-term economic implications stemming from not only a deterioration in ties
with China, but also the inability to establish much-needed free trade agreements with its other trade partners.
TABLE: POLITICAL OVERVIEW 8
Long-Term Political Outlook . 9
Legal Status Quo To Prevail In 2010s .9
Taiwan's long-term political prospects are inseparable from its relations with China, and while cross-Strait relations have thawed in
recent years, we believe the status quo will largely prevail. While further economic integration is likely between the two Chinas, we
exclude meaningful political convergence .
Chapter 2: Economic Outlook . 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
China Dependence Will Lead To Slower-Than-Expected Recovery ..14
Taiwan's economy slowed in Q114 likely on the back of a moderating expansion in private consumption and exports. While we remain
fairly constructive on Taiwan's trade prospects in the near term, we do not believe that recovering demand in the US and Europe will
be able to overcome the drag from China's slowing economy , which will inadvertently weigh on the island's economy given its heavy
reliance on the mainland. We therefore are happy to maintain our below-consensus (3.2%) real GDP growth forecast of 3.0%.
table: Economic Activity .14
Fiscal Policy . 15
Shelving Nuclear Plant Carries Economic Risks, Highlights Political Deterioration .15
The Taiwanese government's decision to halt construction work on the country's fourth nuclear power plant amid public protests carries
not just economic ramifications as businesses face a power shortage and higher energy costs, but also risks to the government's fiscal
profile in the event that it needs to bail out the beleaguered state-owned utilities company Taipower.
TABLE: Fiscal Policy .15
Monetary Policy . 16
Monetary Policy To Remain Growth Supportive 16
The recent acceleration in Taiwan's consumer price inflation is more likely a result of weather-related food price inflation than a
sustained pickup in economic activity. As pressures from food prices start to abate, while economic growth remains fairly moderate,
inflationary pressures will remain well contained. We expect monetary conditions to remain accommodative given that the central bank
remains cautious towards the island's economic growth prospects.
Balance Of Payments . 17
Trade Recovery Continues But China Risks Linger 17
Taiwan appears to be undergoing a trade recovery and we expect this pickup to continue, at least in the near term as Taiwanese
exporters continue to leverage on the recovery in advanced economies in the west. That being said, we highlight that China's slowing
economy presents a salient threat to Taiwan given the island's heavy dependence on mainland demand for its electronics.
table: Monetary Policy ..17
table: Current Account ..18
Chapter 3: 10-Year Forecast . 21
The Taiwan Economy To 2023 .. 21
Multiple Headwinds Against Structural Growth .21
A strong recovery from the global financial crisis by no means suggests that Taiwan's economy will maintain a robust growth trajectory
going forward. 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.
table: Long-Term Macroeconomic Forecasts 21
Chapter 4: Business Environment 27
SWOT Analysis 27
BMI Business Environment Risk Ratings .. 27
Business Environment Outlook 28
Infrastructure 29
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS ..29
TABLE: BMI LEGAL FRAMEWORK RATING 30
TABLE: LABOUR FORCE QUALITY .31
TABLE: ASIA, ANNUAL FDI INFLOWS 32
TABLE: TRADE and INVESTMENT RATINGS .33
Operational Risk . 34
Chapter 5: Key Sectors 35
Defence 35
TABLE: Defence Expenditure, 2010-2018 ..36
Freight Transport 40
TABLE: Rail Freight 40
TABLE: Road Freight .40
table: Air Freight 41
table: Maritime Freight .41
table: Trade Overview ..42
Other Key Sectors . 49
Table: Oil and Gas Sector Key Indicators .49
Table: Pharma Sector Key Indicators ..49
table: Autos Sector Key Indicators ..49
Table: Telecoms Sector Key Indicators .50
Table: Food and Drink Sector Key Indicators ..50
Table: Infrastructure Sector Key Indicators 50
Chapter 6: BMI Global Assumptions .. 51
Global Outlook . 51
Growth Increasingly Polarised ..51
Table: Global Assumptions ..51
Table: Developed States, Real GDP GrowtH, % 52
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % .. 52
Table: Emerging Markets, Real GDP Growth, % ..53

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