Taiwan's economy is expected to grow 4.4 percent this year, thanks to strong exports led by the electronics sector, a top American Express Bank official said yesterday.
"Third-quarter growth picked up, led by exports especially electronics, and full year GDP growth (in 2005) now looks set to be four percent. A further acceleration is likely in 2006 to around 4.4 percent as long as consumer spending holds up," said John Calverley, chief economist and strategist of AMEX Bank Ltd.
The economist is just as upbeat about the prospects of the global economy this year, noting that this upswing will likely continue in the next two to three years.
In Taiwan, industrial production growth is rebounding "smartly" now, he said.
"Given continued growth in China and the U.S. as we expect, together with the cyclical recovery in electronics, the prospects are good for 2006," Calverley said.
Consumer spending has picked up too, he added.
"It should stay reasonable in 2006 as long as wages hold up and bank lending do not slow too much," the economist said. The jobless rate is also trending down although it is still well above historical levels, he continued.
"The fact that it's coming down will help boost consumer confidence," said Calverley.
"Since exports are picking up as well, we expect investments to strengthen this year."
The NT dollar is expected to appreciate a bit in 2006 but probably not as much as the other currencies in the region. Taiwan authorities, he said, would not want a sharp currency appreciation.
The stock market also offers good value, Calverley said.
"Valuations are at historic lows. With economic prospects good and profits likely to rise further, valuations and the market should be able to trend higher," said the AMEX strategist.
The U.S. economy on the other hand is projected to slow from four percent to three to 3.5 percent in 2006. Lower oil prices will provide support to the U.S. economy during the second half of the year, although America's housing boom is expected to slow down gradually due to higher mortgage rates and more expensive house prices.
Energy prices, Calverley said, have eased back on weaker demand. According to AMEX, supply concerns as well as fears of a "severe" northern hemisphere winter will keep prices around US$55 to US$60 per barrel over the next few months but they should drop back to US$50 to US$55 this year.
"Is the oil shock over? If oil prices stay where they are, then the shock will soon be over," Calverley said.
His best guess, he said, is that prices will be stable or a bit lower in 2006.
"I am expecting that the outlook for oil prices will not be a problem this year," said the economist.
Core inflation is near the top end of the Fed's comfort zone, Calverley said.
"We expect inflation to ease back in 2006 and that it won't be a major problem. But this is a key area of risk," he said.
The economist is also confident that investment growth will pick up in 2006 although Eurozone investment remains lackluster.
Japan, which suffered a stocks and real estate bubble in the 1980s, is now in its best shape. Corporate restructuring has boosted investment, jobs growth, and wages, he said, and consumer confidence is up with consumers spending more.