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Taiwan Business Forecast Report Q4 2014

  • August 2014
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views
Taiwan’s economy grew in Q214 likely on the back of strong export orders and increased domestic investment. We maintain our 2014 GDP forecast at 3.1% as 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. However, we expect growth to pick up to 4.1% in 2015, but note that structural headwinds will continue to hold the economy back.

On the political front, we expect Sino-Taiwan relations to improve gradually as both sides actively seek to improve ties following recent student protests against the trade pact with China. Furthermore, it appears that China is maintaining its policy stance of peaceful relations with Taiwan and domestic Taiwanese politics appear to be in
favour of re-engaging with China again. We thus have reason to believe that barring any unforeseen circumstances, ties are likely to remain cordial.

Taiwan’s consumer price inflation has moderated slightly in recent months with high housing prices accounting for most inflationary pressures. We expect pressures from housing prices to abate slightly when property cooling measures take effect later this year, lessening inflationary pressures and ensuring that inflation remains within the
central bank’s expected range. 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 Q4 2014
Executive Summary 5
Core Views...5
Key Risks To Outlook5
Chapter 1: Political Outlook.. 7
SWOT Analysis 7
BMI Political Risk Ratings.. 7
Foreign Policy . 8
Sino-Taiwan Relations Warming Up..8
We expect Sino-Taiwan relations to improve gradually as both sides seek to improve ties in the wake of protests against the ratification
of the Cross-Strait Service Trade Agreement (CSSTA) and occupation of parliament by the Sunflower Student Movement.
TABLE: POLITICAL OVERVIEW ....8
Long-Term Political Outlook. 10
Legal Status Quo To Prevail In 2010s..10
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. Meanwhile, Taiwan extremely unlikely to regain internationally recognised independence. As
a result, we believe Taiwan will remain in a political no-man's land - with this being the best path for political stability.
Chapter 2: Economic Outlook.. 13
SWOT Analysis... 13
BMI Economic Risk Ratings.. 13
Economic Activity... 14
Structural Challenges Remain....14
Despite Taiwan's better than expected Q214 GDP growth figures on the back of strong export orders and increased domestic
investment, we maintain our 2014 GDP forecast at 3.1%. We expect growth to pick up to 4.1% in 2015, but note that structural
headwinds will continue to hold the economy back.
table : Economic Acti vit y14
Fiscal Policy... 15
Taiwan's Budget Deficit To Stabilise....15
We forecast Taiwan's budget deficit to widen slightly from 1.8% of GDP in 2015 to 2.1% in 2014 before stabilising in 2015, given the
raising of the debt ceiling and stalling of pension reforms. Upcoming local elections this year also make it unlikely that the ruling Kuomint
ang (KMT) will push hard for reforms to expenditure lest it risk alienating its electorate base. We also forecast revenues to shrink in 2014
before increasing in 2015 with the introduction of much needed tax reforms helping to increase government revenue.
table: Fiscal Policy16
Monetary Policy.. 16
Rate Hike Unlikely Despite Surging Property Prices ..16
The Central Bank of the Republic of China (Taiwan) (CBC) will keep rates on hold at 1.875% until Q215 despite high food prices and
rising housing prices. Rather than hike rates, we expect the government to continue to implement property market policies to bring
down housing inflation given that prices have yet to reflect new cooling measures implemented in June. However, we cannot rule out a
possible rate hike early next year should the ending of QE lead to an earlier than expected hike in US interest rates.
Table : Monetar y Polic y..17
Exchange Rate Policy.. 18
TWD: Modest Gains Beyond 2014 ..18
The Taiwanese dollar is likely to trade within a tight range over the coming months, with appreciatory pressures (high current account
surplus and strengthening Asian FX) and depreciatory pressures (declining rate-hike expectations and a weakening Chinese yuan)
largely offsetting each other. Over the longer-term, though, the currency's undervaluation, and a combination of lower inflation and
higher real GDP growth compared with the US, should support gradual appreciation of the TWD.
Table: Current Account.18
Table: CURRENCY FORECAST.19
Chapter 3: 10-Year Forecast 21
The Taiwan Economy To 2023... 21
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. Lastly, we expect the structural shift in China's economy to carry wide-ranging ramifications for Taiwan. We
expect real GDP growth to average 3.9% between 2014 and 2023.
Table : Long-Term Macr oec onomic 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 INV ESTMENT RATINGS ....33
Operational Risk. 34
Chapter 5: Key Sectors... 35
Pharmaceuticals and Healthcare... 35
Table : Pharmaceutical Sales , Hist orical Data And Forecasts ....37
table : Healthcare Expe nditure Tre nds , Hist orical Data And Forecasts 38
table : Gover nme nt Healthcare Expe nditure Tre nds , Hist orical Data And Forecasts ... 38
table : Pri vate Healthcare Expe nditure Tre nds , Hist orical Data And Forecasts .. 38
Telecommunications.... 39
Table : Telec oms Sect or-Mobile -Hist orical Data and Forecasts 39
Table : Telec oms Sect or-Wireli ne-Hist orical Data and Forecasts . 40
Other Key Sectors... 41
table: Oil and Gas Sector Key Indicators..41
table: Defence and Security Sector Key Indicators41
table: Infrastructure Sector Key Indicators..41
table: Food and Drink Sector Key Indicators....42
table: Autos Sector Key Indicators..42
Table : Freight Key Indicat ors 42
Chapter 6: BMI Global Assumptions. 43
Global Outlook.... 43
US Revision Drags Down Forecast.43
Table : Global Assumpti ons43
Table : Devel oped States , Real GDP Growt H, %..44
Table : BMI VERSUS BLOO MBERG CON SENSUS REAL GDP GROWTH FORECASTS, %.. 44
Table : Emergi ng Markets , Real GDP Growth , %.45

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