Taiwan poised for economic growth in 2013

A 4.2% jump in GDP is forecasted.

According to DBS, the advance estimate of 4Q12 GDP is due tomorrow. It expects that growth has risen to 2.7% YoY from 1.0% in 3Q12. Also, it forecasts 4.2% GDP growth in 2013, above the consensus of 3.3%.

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Exports should have been the major growth driver. This was despite that the QoQ growth momentum in exports has eased slightly from 3Q12 due to the high base (exports rose strongly in Sep12 on the back of festive demand and release of new IT products). Investment and consumption appeared to remain weak in 4Q12, with the key indicators including capital goods imports and retail sales staying flattish.

Export recovery will likely be sustained in the near term, as evidenced by the solid rise in export orders as of Dec12. As the recovery in external demand consolidates, capital spending in the manufacturing sector is also likely to pick up.

Meanwhile, we expect consumer spending to improve this year, as inflation has started to normalize after the temporary surge in food and energy prices in 2012.

From the sectoral perspective, besides a cyclical recovery in manufacturing, growth drivers in the services sector are expected to remain intact this year thanks to crossstrait liberalization. Starting from May, the daily quota for individual Chinese tourists visiting Taiwan will be lifted to 2,000 from 1,000, and the daily limit for Chinese tourists traveling in groups will be raised to 5,000 from 4,000.

This is expected to create additional tourism revenues of TWD 36bn or 0.2% of GDP this year. Meanwhile, Taiwanese banks will start offshore RMB business soon from next month, which bodes well for the income and employment outlook in the financial services sector.