Citibank predicted Thursday that Taiwan’s economy will grow 3.7 percent in 2012, citing mild growth in exports in the second half of the year and limited impact from possible electricity price hikes.
Although the figure remained unchanged from the bank’s previous forecast in December, Citi said the real gross domestic product (GDP) growth is likely to accelerate sharply in the second half of this year from an increase of 0.9 percent in the first quarter to 6.2 percent in the fourth quarter.
Cheng Cheng-mount, chief economist of Citibank Taiwan, said that due to weaker demand from China and slowing economic growth in developed markets, Taiwan’s exports in January and February were both down 4.5 percent from the same period of last year.
“Going forward, the improving global outlook will likely provide some upside risk for exports, driving Taiwan’s exports to recover slightly in 2012,” Cheng told a press briefing.
“But rising competition from China for tech exports and threats to non-tech exports from South Korea’s free trade agreements with the United States and the eurozone will pose a challenge to Taiwan’s exports,” he added.
Driven by better-than-expected economic figures in developed markets, Citi has edged up its global economic growth forecast to 2.5 percent in 2012, while maintaining its 2013 global GDP forecast at 3.0 percent.
The bank has also revised upward its GDP forecast for the United States from 2.0 percent to 2.1 percent, for Europe from minus 1.3 percent to minus 1.2 percent, and for Japan from 1.2 percent to 1.5 percent.
Speaking on the possible hikes in domestic electricity and water prices, Cheng said a one-off adjustment will not cause much higher pressure on inflation.
“Compared with other Asian countries, Taiwan does not face a severe inflation problem,” Cheng said.
He explained that as water, electricity and gas supplies account for just 3.7 percent of Taiwan’s consumer price index (CPI), a 10 percent increase in water and electricity prices will likely boost CPI by only 0.3 percentage points this year.
As a result, Citi has raised its 2012 and 2013 Taiwan CPI forecasts to 1.7 percent and 1.9 percent, from 1.4 percent and 1.7 percent, respectively, given upside risks that include higher international crude oil prices, higher taxes, higher food prices and improving wage growth.
Domestic unleaded gasoline prices were hiked April 2 by between NT$2.3 (US$0.078) and NT$3.6 per litre, or about 7 to 11 percent, the biggest one-time increase in domestic fuel prices since May 2008.
The hike will lower Taiwan’s economic growth rate by 0.22 percentage points and push inflation 0.37 percentage points higher, according to the Ministry of Economic Affairs.-By Jeffrey Wu