LONDON, Dec. 19, 2016 /PRNewswire/ -- Core Views
We are upgrading our forecast for Taiwan's 2016 real GDP to grow by 1.1% from 0.7% previously following revisions to H116 data and stronger than expected Q316 growth. With external conditions showing signs of stabilising following a gradual pick up in the tech cycle and the effects of domestic policy appearing to be gaining traction, we maintain our 2017 real GDP forecast at 2.0%. The ICAO's refusal to let Taiwan participate in the meeting held from September 27 to October 7 shows the extent to which cool cross- Strait ties are limiting Taiwan's ability to participate in international events, and we expect this to remain the case for the foreseeable future. Exclusion from the ICAO will also have a negative impact on Taiwan's aviation industry and could weigh on the island's economic growth. The CBC held its discount rate at 1.38% during its monetary policy meeting on September 29.
Given that various leading indicators suggest that growth has stabilised while inflation remains manageable, we have pared back our expectations for an additional rate cut and now expect the CBC to remain on hold throughout 2016 and 2017. Taiwan's modest budget will likely hit its deficit target in 2017 due to the conservative stance adopted by the government. We therefore forecast the deficit to come in at 0.9% of GDP in line with the government's projected 0.9%. We expect the New Taiwan Dollar (TWD) to remain within its current trend channel over the coming months, averaging TWD31.50/USD in 2017 amid a positive technical picture. Over the long-term, we expect gradual strength as an undervalued real effective exchange rate, a strong net international investment position (NIIP), and low inflation lend support to the TWD.
Major Forecast Changes We have pared back our expectations for an additional rate cut and now expect the CBC to remain on hold throughout 2016 and 2017 amid signs of stable growth and inflation. We have upgraded our forecast for Taiwan's 2016 real GDP to grow by 1.1% from 0.7% previously following revisions to H116 data and stronger than expected Q316 growth.
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