Taiwan's GDP seen to jump to 3.3% next year

Will China's slowdown still drag its growth?

According to DBS, Taiwan's GDP growth is forecasted to rise to 3.3% in 2014.

Here's more:

The preliminary estimate of 3Q GDP will be released tomorrow morning. Growth is expected to remain stable at 2.5% YoY (3% QoQ saar).

Based on the monthly indicators available, exports and equipment investment remained weak in 3Q, while consumption and construction investment were strong to offset, thanks to abundant domestic liquidity, stable financial markets and a buoyant property market.

By industry, the manufacturing sector faced the headwinds of soft external demand. On the other hand, the services sector has continued to benefit from closer trade ties with mainland China.

Tourism revenues and job creations in transport, accommodation and food services sectors remained strong in 3Q.

GDP growth in the first three quarters of this year should have averaged 2% YoY, higher than 1.3% in 2012, but lower than the long-term trend of 4%. Undeniably, China’s economic slowdown this year has hit Taiwan’s exports seriously, an important growth engine for the economy.

The impact of the US’s QE tapering talk on Taiwan’s financial markets and domestic demand has been relatively muted, because the economy has a very strong external position and low reliance on foreign financing.

Thankfully, the Chinese economy has showed some signs of a bottoming-out in recent months. Taiwan’s export orders also rebounded on the MoM basis for two consecutive months in August and September. A mild, export-led recovery is expected in the next couple of quarters.