Taiwan s ---- real GDP growth came in at -.- , slightly below our forecast of -.- . Ongoing weakness in the Chinese economy cou- pled with continued uncertainty in the domestic political situation will continue to weigh on Taiwan s economic growth. ...As such, we maintain our ---- real GDP forecast at -.- . Figures from both the expenditure and production accounting methods indicate that the country s all-important export-oriented manufacturing sector is facing significant headwinds from the slowdown in China and reduced global demand for tech products. On the expenditure side, exports continued shrinking for the third consecutive quarter, coming in at --.- y-o-y in Q--- (versus a contraction of -.- in the previous quarter). ...Manufac- turing contracted by -.- y-o-y in this quarter, continuing its slide from the --.- print recorded in Q---. Electricity and gas also remained firmly in negative territory, coming in at ---.- y-o-y in Q--- (versus --.- in the previous quarter).
...Taiwan s opposition Democratic Progressive Party (DPP) won a landslide victory in both the presidential and parliamentary elections held on January --. With the pro-independence DPP having yet to fully articulate its cross-Strait policy, we expect political risks to remain high, undermining investor confidence. ...Continued export headwinds and low inflation will prompt the CBC to cut rates in a bid to support growth and keep the Taiwan dollar competitive, and we expect the central bank to take its benchmark rate to -.--- by the end of ----. Taiwan s modest stimulus package aimed at supporting growth through boosting domestic spending will have a limited effect on the country s growth, which will continue to be hampered by stiff export headwinds as well as domestic political instability. The size of the package is also unlikely to have a significant impact on the ---- fiscal deficit, which we forecast to come in at -.- of GDP. ...As such, we see continued weakness in the near term, with the currency ending ---- at TWD--.--/USD. Over the long-term, an undervalued real effective exchange rate and a large current account surplus will lend support to the currency, limiting weakness and providing stability.
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