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Home > Reports By Country > Asia > Taiwan
Taiwan Business Forecast Report Q4 2008
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Economy To Remain Shaky In Q408
The going is clearly getting tougher for President Ma Ying-jeou and his Kuomintang (KMT) government, as evidenced by street protests in Taipei at the end of August. Subdued business and consumer sentiment coupled with weakening global demand will likely mean a fairly disappointing pace of growth for the year as a whole, despite the government’s announced TWD180.9bn (US$5.6bn) fiscal stimulus package. We have maintained our 4.1% growth forecast for 2008, as we do not expect to see any near-term rebound in domestic demand and believe external headwinds could suppress net exports in the second half of the year. Having said that, falling commodity prices (most notably oil) are likely to mean a moderation in inflation during the final months of the year and this may allow the authorities to focus more wholeheartedly on averting a hard landing.
After a few reasonably smooth months in office since their landslide victory in March’s elections, President Ma Ying-jeou and his Nationalist Party (KMT) government have come up against some palpable headwinds, with opinion polls suggesting waning support. An editorial in the Taipei Times on September 1 sums up the atmosphere with the sobering remark that ‘the honeymoon that never was is now over’. Clearly, challenging times lie ahead, but for all the gathering clouds, BMI remains broadly positive about Ma’s initiatives, particularly with regards to cross-Strait relations, although he is likely to have to tread slightly more carefully on this front going forward, to avoid provoking an uproar by the island’s pro-independence movement. That said, the mainland factor is not the only source of disappointment.
The outlook for the remainder of the year is downbeat, largely in view of a worsening external outlook but also as we are unlikely to see any major rebound in domestic demand. Indeed, in what looks like a foretaste of things to come, July export order growth data dropped to a five-year trough of 5.52%, down from 9.27% in June. Previous expectations that demand from mainland China and South East Asia would cushion faltering orders from G3 markets now look like wishful thinking. Export bookings to the mainland and Hong Kong rose by a paltry 1.73% y-o-y in July, the weakest figure since February 2005. Moreover, despite a host of measures being implemented to stop the convulsions on the stock market - such as halving the securities transactions tax - investors have continued to flee Taiwanese equities and confidence is unlikely to return until we see some signs of a stabilisation in US financial markets.
The decision of the Executive Yuan in July to lift China-bound investment restrictions augurs well for Taiwanese firms with operations on the mainland. The previous 40% cap (of a company’s net worth) on how much a Taiwanese company could invest in the mainland has been nudged up to 60% for most companies. Moreover, the government has also approved the Financial Supervisory Commissions (FSC)’s suggestions of a relaxation of limits on funds raised domestically or abroad for investment on the mainland. Companies headquartered in Taiwan or foreign multinational enterprises’ subsidiaries on the island will now be able to use 60% of funds raised domestically for investment on the mainland, with no restriction on funds collected abroad.
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