Taiwanese economy likely to expand 2.8 pct in 2018, inflation to reach 1.3 pct – DBS Bank

The Taiwanese economy expanded 3 percent on a year-on-year basis, a stable rate as compared to 3.3 percent in the final quarter of 2017. On a sequential basis, growth eased to 1.3 percent from 4.3 percent, but the two-quarter average continued to be strong at 2.8 percent. Both exports and private consumption growth continued to be stable in the first quarter. The rise in imports mainly restricted the GDP growth expansion, noted DBS Bank in a research report.

While coincident indicators have continued to be solid as of March, some leading indicators imply that growth momentum is expected to slowdown in the second quarter, stated DBS Bank. Export orders have dropped to single-digit growth in March. Manufacturing PMI has also fallen for two straight months, from the peak of 56.9 in January to 55.3 in March.

“We keep our annual GDP growth forecast unchanged, at 2.8 percent. On a quarterly basis, we look for slower growth of 2.9 percent (YoY), 2.6 percent and 2.5 percent for 2Q, 3Q and 4Q, respectively”, said DBS Bank.

Headline consumer price inflation rose above expectations by 1.5 percent year-on-year in the first quarter. The rise was not mainly because of food and energy prices. Core CPI also rose during this period, although moderately, from 1.3 percent to 1.6 percent.

Given the ongoing sharp rise in oil prices, the cost-pushed inflation might likely continue to build up in the coming months. According to DBS Bank, the average Brent oil price is expected to reach to USD 70/bbl for 2018, up from USD 60-65/bbl previously, factoring in increased geopolitical risks in the Middle East and better-than-expected inventory data.

In the meantime, public inflation expectations have begun to rise. Consumer confidence about prices levels in the next six months dropped sharply by nearly five points in March. Worries about price hikes on daily necessities have caused panic buying of toilet paper in the last few months. The rise in inflation expectations, against the backdrop of tightening labor market conditions, indicates towards the risk of a wage-price spiral.

“Considering both the supply- and demand-side dynamics, we are revising the 2018 inflation forecast to 1.3 percent, up from 1.0 percent previously”, added DBS Bank.

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