HXL have revised upwards our 2017 Taiwan GDP growth from 2.2% to 2.4% as stronger-than-expected exports and private consumption helped drive economic momentum. However, we expect GDP next year to fall slightly before recovering in 2019.
Taiwan in one of Asia’s major exporters of technology goods and is expected to have a strong fourth-quarter result as manufacturers met orders for Apple’s iPhone X that went on sale on November 3rd. However, this momentum is expected to fade next year as the nation’s major trading partners, China and Europe, are expected to be impacted by slowing economic growth, which will be a key drag on regional trade growth.
As a result, we expect GDP to fall back marginally to 2.3% next year before recovering back to 2.4% in 2019. However, GDP could exceed our forecasts if global demand for new technology products increases, leading to stronger exports.
The Taiwanese Government is currently in a strong fiscal position and has the ability to implement more fiscal policies like the Forward-looking Infrastructure Development Program. This could counterbalance economic headwinds and stimulate private investment. However, if the government again fails to properly execute the Forward-looking Infrastructure Development Program, this would create downside pressure on future growth forecasts.
Finally, we expect the central bank to increase interest rates twice by 12.5 basis points next year as well as a further two more rate increases in 2019 taking the policy rate from 1.365% to 1.875%. The increases will not match the expected rate rises by the U.S. Federal Reserve. An increase in interest rates in the U.S. will likely lead to moderate capital outflows and a depreciation in the New Taiwan Dollar.