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Taiwan Country Risk Report Q1 2019

Taiwan Country Risk Report Q1 2019

We expect Taiwan's real GDP growth to slow over the coming quarters as uncertainty in the global trade environment will likely act as a drag on exports and investments That said, the government's expansionary fiscal policy will prevent a sharp deceleration in growth

The future of Taiwan is likely to exacerbate ongoing trade disputes between the US and China, with the Trump administration shoring up support for the island Beijing views Taiwan's future status as its top geopolitical priority, and will thus react very negatively towards any US attempts to link Taiwan to trade or other issues in Asia

We expect the Central Bank of the Republic of China (Taiwan) (CBC) to keep its discount rate on hold at 1 375% for a prolonged period due to rising global un-certainty stemming from trade tensions and subdued inflation

We expect Taiwan's fiscal policy to remain loose over the coming quarters as the government will likely look to increase expenditure growth to support its infra-structure and innovation initiatives, as well as social and defence spending

We expect the Taiwan dollar to come under pressure relative to the US dollar over the coming months and into 2019 due to the combination of negative eco-nomic impact from an escalation in US-China trade tensions and diverging monetary policies between a hawkish US Federal Reserve and a cautious Taiwanese central bank Major Forecast Changes

We have lowered our 2019 real GDP growth forecast to 2 3% (from 2 6% previously) to account for greater external headwinds over the coming quarters

We have lowered our discount rate forecast to 1 375% for 2019 (versus 1 50% previously) to reflect our expectations that the central bank will maintain its ac-commodative monetary policy stance due to weakening growth and subdued inflation

We have revised our fiscal deficit forecast as a share of GDP to 0 7% in 2019, from 0 4% previously, to reflect greater spending on development programmes and weaker revenue

We have revised our 2018 average forecast for the Taiwan dollar to TWD30 00/USD (from TWD30 60/USD previously) to account for the relative outperformance as compared with other Asian currencies

Key Risks

Downside Risks To Growth Forecast: Should we see a re-emergence of a crisis in the eurozone, a slower than expected US recovery or a downward spiral in China's economy, we can expect Taiwan to head into a sharp recession Taiwan Country Risk Q1 2019


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Lowering Taiwan's 2019 Growth As External Challenges Intensify
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
Monetary Policy
Taiwan's Easy Monetary Policy To Continue For An Extended Period
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Taiwan's 2019 Budget: Continued Focus On Economic Development Amid Trade Headwinds
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
US-China Trade Conflict To Hurt Taiwan Dollar
TABLE: CURRENCY FORECAST
Taiwan Country Risk Q1 2019THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS MACRO RESEARCH and is NOT a comment on Fitch Ratings’ Credit Rating. Any comments or data included in the report are solely derived from Fitch Solutions Macro Research and independent sources. Fitch Ratings’ analysts do not share data or information with Fitch Solutions Macro Research.Contents10-Year Forecast
The Taiwan Economy To 2027
Multiple Headwinds Against Structural Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Strains In China-Taiwan Relations To Persist
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Legal Status Quo To Prevail Into The 2020s
Operational Risk
TABLE: OPERATIONAL RISK
Economic Openness
TABLE: TARIFF AND NON-TARIFF TRADE BARRIERS
TABLE: FREE TRADE AGREEMENTS
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
TABLE: BARRIERS TO FDI
Market Size and Utilities
TABLE: ELECTRICITY RISKS
TABLE: FUEL RISKS
TABLE: TELECOMMUNICATIONS RISKS
TABLE: WATER RISKS
Global Macro Outlook
Inflation And Policy Risks Rising
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: TAIWAN – MACROECONOMIC DATA & FORECASTS

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