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Rebound in Taiwanese economic growth likely to be sustained in 2018 – DBS Bank

The Taiwanese economy has maintained two straight years of rebound since coming out of technical recession in 2015. According to a DBS Bank, the ongoing cyclical rebound is expected to be maintained for the third year in 2018, with the economic growth stable at 2.5 percent.

Recovery in Taiwanese economy is expected to be broadened next year, while the sources of growth would be more balanced. External demand has mainly stimulated the higher growth in 2017. Goods and services exports is estimated to have expanded 6.5 percent this year, the most strongest in seven years. Net exports have thus added around 60 percent to the headline economic growth this year. On the contrary, private consumption growth, amongst the key components of domestic demand, was just stable in 2017, while government consumption and gross fixed capital formation both contracted a bit.

Meanwhile, private consumption growth is expected to rebound noticeably to 2.4 percent next year from 2.2 percent in 2017. Government consumption and gross fixed capital formation would also return to growth in 2018, note DBS Bank.

“Our baseline forecast – steady GDP growth, benign inflation, and still-low interest rates – suggests that the economy will be in a sweet spot in 2018”, stated DBS Bank.

However, downside risks to the growth outlook and upside risks to inflation remain. An increase in oil prices is a distinct risk to the inflation outlook. Bren crude oil prices might have increased faster than expected to exceed USD 60 per barrel since November 2017.

“Should oil prices stay at US$60-$65 in 2018 (10 percent higher than our baseline forecast), Taiwan’s CPI inflation will be boosted by 0.3ppt to nearly 1.5 percent. This could increase the pressure on the central bank to hike rates”, added DBS Bank. 

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