Taiwan's GDP forecast dropped to 3.3%

Blame it on sluggish economic outlook in China.

According to DBS, it has lowered Taiwan’s 2014 GDP growth forecast to 3.3% from 4.2%, following the downgrade of China’s 2014 GDP forecast to 7.5% from 8.5%.

Compared to a projected 2.6% growth this year (to be reviewed after the release of 2QGDP next week), DBS continues to expect Taiwan’s growth momentum will pick up modestly in 2014. This is based on the global view that the US will sustain a moderate recovery, Europe will slowly come out of recession, and the Chinese economy will avoid a hard landing.

Here's more:

Taiwan is susceptible to the short-term risk of China slowdown, considering that its manufacturing sectorlargely relies on export demand from the Chinese market.

The latest data showed that export orders dropped -3.5% YoY in June (-0.1% MoM sa), largely due to deteriorating demand from China and Hong
Kong (-1.7% MoM sa). Industrial production also slipped -0.4% YoY in June.

From the long-term perspective, the Chinese economy is entering into a structural transition, moving from the investment-driven growth model towards a consumption-driven one, and moving from the labor intensive low-end manufacturing towards the high tech and services sectors.

Taiwan’s FDI investment in China has been shifting towards the services industry in recent years and the cross-border services trade has grown rapidly, a wise strategy to cope with China’s economic transition.

As a percentage of Taiwan’s annual FDI investment in China,servicesinvestment hasrisen to 40% in 2012 from lessthan 20% in 2009.

Meanwhile,the revenues oftourism exportsto China have surged to about USD 4bn in 2012 from USD 1.5bn in 2009.