Taiwan’s recently released real GDP report shows that the economy grew at an annualized rate of 0.8% q/q in Q1; however, on a year-on-year basis, real GDP declined 0.8% in Q1. This was below consensus expectations. Taiwan’s economy has stagnated in the past year, noted Wells Fargo. Weak export growth has partially driven the economic slowdown in Taiwan. The nation’s real exports of goods and services dropped 3.9% in Q1, deeper contraction than Q4 2015’s 2.6%.
Taiwan’s nominal value of exports to mainland China, which is its most vital trading partner, declined around 13% y/y in Q1. Real net exports put a 2.3 percentage point drag on overall GDP growth in Q1. Deceleration in growth of export has occurred along with weakness in investment spending during that period, said Wells Fargo. Gross fixed capital formation fell 2.5% y/y in the first quarter.
Only consumption expenditures by government as well as consumers have seen strength in Q1. However, the real personal consumption expenditures have slowed in recent quarters. PCE had grown 2.3% in 2015. It grew just 1.8% y/y in Q1 2016.
Taiwan’s overall CPI rose 2% in March. However, the acceleration of inflation in recent months is mostly due to base effects. The underlying inflation pace continues to be restricted. The nation’s central bank has lowered its main policy rate by 37.5 bps since last summer due to benign inflation and weak economic growth. Several forecasters believe the central bank will further ease later in 2016, said Wells Fargo.
The USD has strengthened against several emerging market currencies including the TWD since mid-2014. Over that period, the Taiwanese dollar has depreciated around 7% against the USD. The Taiwanese dollar is likely to decline modestly against the USD in the next year or so due to the rising rates in the US, according to Wells Fargo.
“Our strategists do not expect the TWD to trade through the 7-year low versus the greenback that was reached earlier this year”, added Wells Fargo.
The material has been provided by InstaForex Company – www.instaforex.com