Boston, MA -- (ReleaseWire) -- 03/27/2014 -- Taiwan's economy accelerated strongly in Q413, leading the island to record a full-year 2013 real GDP growth of 2.2%, marginally eclipsing our forecast of 2.1%. While we remain constructive on economic momentum in the coming quarter, we remain less upbeat on Taiwan's growth trajectory through 2014. We expect the economy to face key downside risks from a slowing Chinese economy, as well as a possible correction within the local property market. We are happy to remain below consensus with our real GDP growth forecast for 2014 coming in at 3.0%, versus 3.5%.
While the Taiwanese dollar has lost 3.4% of its value since the selloff which began in October 2013 and 1.5% since the start of 2014, it appears to have found some measure of stability in recent trading sessions. We expect the unit to trade between the range with resistance at the TWD30.20/US$ level and support at the TWD30.70/US$ level. We are forecasting the currency to average TWD30.50/US$ in 2014 before ending the year at TWD30.70/US$.
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Taiwan's biggest long-term political challenge is managing its deepening economic ties with mainland China, so that it retains its de facto political independence. Beijing appears to be pursuing the absorption of Taiwan by stealth, but this could yet lead to a backlash from Taiwanese voters.
Taiwan's property market appears to be moving in the opposite direction to the broader economy. Despite relatively sluggish economic performance over the past year, Taiwanese real estate continues to boom. We have highlighted before that property boom has not been backed by solid economic fundamentals and the continuing rise in prices merely makes our conviction stronger. With property demand expected to be hit by a weakening economy, while housing supply continues to increase, we believe that a correction in the sector is only a matter of time.
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