Apr 20, 2012

Taiwan: Economy to Remain Stable

Economic experts have said that the Taiwanese economy looks set to continue its sustainability in 2012 as a result of growth in China and the gradual recovery of the U.S. economy.

Below is an article published by Focus Taiwan:

Taiwan's economy will do reasonably well this year [2012] due to a soft landing of growth in China and the gradual economic recovery in the United States, a Hong Kong-based strategist from Credit Agricole Corporate and Investment Bank said Thursday [19 April 2012].

Mitul Kotecha, head of the bank's global foreign exchange strategy team, said although many factors, such as a drop in the Baltic Dry Index -- an assessment of the price of moving major raw materials by sea, could effect Taiwan's industries, they will not pose big risks.

Kotecha made his remarks at a Taipei event held under the banner "Are the Clouds Finally Lifting -- The recovery of the global economy in sight?"

The Taiwan dollar will be reasonably flat this year [2012], expected to appreciate 2 or 3 percent, he estimated at the event, which was organized by the European Chamber of Commerce Taipei.

"Our overall view on the Asian economic environment is that Asia will continue to outperform many other emerging market regions this year [2012],"said Kotecha, who added that Asia has been able to avoid a substantial amount of pressure stemming from the U.S. and the European economic crisis.

With regard to China, he said although it has slowed down its economic growth this year, "we think it's a policy-induced slowdown, so we are not too concerned about a hard landing in China."

"China is aiming for an improved quality of growth," said Kotecha. "We are seeing a shift away from external trade towards domestic consumption."

That is important because with the trade balance in China shrinking, upward pressure on the Chinese yuan would also be lessening, said the strategist.

Therefore, his bank does not estimate a significant appreciation of the Chinese yuan this year [2012], Kotecha said, adding that the growth rate is forecast between 1.5 and 2 percent, compared with 5 to 6 percent last year [2011].

Meanwhile, he said the world's economy will recover gradually, but it will not be a "one-way bet."

"I think it is going to be much more of a rocky road as we go through this year [2012],"said Kotecha, citing the European debt crisis and recent data that show a gradual U.S. recovery.

However, Kotecha said the Small Business Confidence Index, which he said was a good indicator of the U.S. economy, had showed an upward trend in recent months.

"Things are moving in the right direction in the U.S. It's just not going to happen as quickly as many people have been hoping for," he said, predicting that the U.S. economy" will lead economic growth in the G3 economies (the U.S., Europe, Japan)."

On the contrary, Kotecha said that European growth is going to be "very weak" and the pressure is expected to continue through the next few months with Spain and Italy now under the spotlight in the European crisis.

"Unfortunately, growth will converge to a weaker trend in the Eurozone this year," he said.

Kotecha estimated this year's GDP growth to reach 2.1 percent in the U.S., minus 4 percent in Europe and 2 percent in Japan.