Strengthening global demand for electronics products makes market observers more upbeat about Taiwan's trade prospects in 2006.
"Taiwan's economy regained momentum in (the second half) of 2005, underpinned by a rebound in electronic exports, ample domestic liquidity, and low unemployment," investment bank Lehman Brothers said in its latest economic monitor.
"Real interest rates are negative and credit is growing solidly. They could interact positively with the property market which is emerging from a decade-long slump."
Domestic politics and "too loose" monetary conditions fueling excesses present some downside risks, the report added.
Overall, Asian economies excluding that of Japan's are all starting to thrive from better economic fundamentals, positive structural factors, and loose macro policies.
"In U.S. dollar terms, Asia ex-Japan's (including India) total nominal GDP has surpassed the size of Japan, highlighting its importance in the world economy," said the report.
"Absent further large negative shocks, the region's economic growth should start rotating from net exports to domestic demand."
A revival in domestic demand in the region should also increase Asian policymakers' tolerance to let their currencies appreciate.
"Indeed, these two developments could reinforce each other, as stronger currencies hurt net exports, increasing the need to keep real interest rates low to support domestic demand," the report said.
"We would describe China's new exchange rate regime as a crawling peg, and we expect the 'crawling' appreciation of the renminbi to get faster over time."
More Asian currencies were expected to appreciate vis-a-vis the U.S. dollar by six to 12 percent this year, Lehman Brothers continued.
"Our forecasts of currency appreciation and a resurgence in domestic demand stand to reduce Asia ex-Japan's overall current account surplus from 5.5 percent of GDP in 2005 to five percent in 2006, and 3.9 percent in 2007," it noted.
Lehman Brothers said the region's economies possess the necessary foundations for a new economic paradigm - one where countries are starting to move away from an export-led development growth model.
Three fundamental changes are needed to accomplish that: A resurgence in Asian home-grown demand; stronger Asian currencies; and shrinking current account surpluses, the report added.
"We predict this paradigm shift with some trepidation. Because of its export-led development model, Asia ex-Japan has many of the world's most open economies, and so is very exposed to the downside risks in the unbalanced world economy," the economic monitor said.
This paradigm shift however would also help rebalance the global economy, it added.
"Emerging Asia needs to take more responsibility in helping resolve the large imbalances in the world economy - after all, the region is certainly 'emerging,'" said the bank.