The author is Raymond Yeung, senior economist of Greater China at ANZ
Taiwan’s growth slowed to 1.58% in the third quarter, much lower than the 10-year average of 4.1%, indicating that the output gap remains negative. We consider today’s release a big downside surprise.
The drag in the headline gain was the sharp decline in net exports contribution to GDP growth from the second quarter’s 2.08 percentage point to the third quarter’s 0.65 percentage point.
Investment growth also failed to impress with a growth of just 1.04% year-on-year, contributing 0.17 percentage point to the headline figure, indicating sluggish business confidence.
With today’s release, we revise our full year GDP forecast downward to 2.18% from the previous 2.36%, We also fine-tune the 2014 growth forecast downward to 3.6% in 2014, from 3.9% previously given the fact that global growth profile will likely edge down next year.
The government’s GDP forecast for 2013 and 2014 was recently revised downward to 2.31% and 3.37% respectively.
We also revise our policy rate call and now expect Taiwan’s central bank to likely keep the policy rate on hold in December.
The short-term outlook faces strong headwinds, given the recent decline in the U.S. consumer confidence. In addition, SEMI’s book-to-bill ratio has dropped to below unity in August and September, suggesting a possible inventory adjustment process along global electronics supply chains.
The current disinflation scenario will likely continue for an extended period, given the ongoing strength of Taiwan dollar that helps fend imported inflation. The central bank has no urge to raise the interest rate too early.
Delay in the U.S. quantitative tapering and debt ceiling resolution will continue to heighten market uncertainty. This will press the central bank to act prudently and remain accommodating for an extended period. It will delay the will of rate normalization until at least the second quarter of 2014.
(The article has been edited for clarity)