Why analysts expect a dismal growth from Taiwan for 2013

GDP forecast slipped to 2.6%.

According to DBS, GDP forecast for 2013 has been lowered further to 2.6% from 3.3%. The 2Q growth appears weaker than expected. Export growth slipped in April-May, PMI dropped below 50. Industrial production fell in April and the rise in inventory-to-shipment ratio suggests that destocking pressures will remain in the near term.

While a substantial economic recovery will be delayed to 2014 (forecast: 4.2%), DBS has not abandoned the view that growth will improve in 2H13.

Here's more from DBS:

Technically, the contribution of net exports to GDP growth should turn positive, as imports growth has retreated thanks to the moderation in capital goods demand and the fall in commodity prices.

Meanwhile, consumption growth should be helped by the recent easing of energy price inflation and the improvement in real household incomes. The government’s latest proposal of revising the capital gains tax bill should also lift public sentiment.

On monetary policy, we think the probability of rate cuts is lower than 50%. The overnight interbank rate currently stands at only 0.39%, and the inflation-adjusted short-term real rates remain negative (CPI: 0.9% in Apr-May).

Meanwhile, property prices have continued to rise strongly, despite the central bank’s attempt to cool prices via mortgage lending controls. The central bank has to be wary of the side-effects of lower interest rates on asset prices. We expect the CBC to hold the policy discount rate steady at 1.875% when they meet on June 27.

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